Company Quick10K Filing
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Barclays Bank
20-F 2018-12-31 Annual: 2018-12-31
20-F 2017-12-31 Annual: 2017-12-31
20-F 2016-12-31 Annual: 2016-12-31
20-F 2015-12-31 Annual: 2015-12-31
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C070 2018-12-31
Item 17 ☐
Item 18 ☐
EX-12.1 d661982dex121.htm
EX-13.1 d661982dex131.htm
EX-15.1 d661982dex151.htm
EX-15.2 d661982dex152.htm
EX-99.1 d661982dex991.htm

Barclays Bank Earnings 2018-12-31

C070 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 d661982d20f.htm 20-F 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                         

 

Commission file number   Barclays Bank PLC   1-10257

BARCLAYS BANK PLC

(Exact Name of Registrant as Specified in its Charter)

ENGLAND

(Jurisdiction of Incorporation or Organization)

1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND

(Address of Principal Executive Offices)

GARTH WRIGHT, +44 (0)20 7116 3170, GARTH.WRIGHT@BARCLAYS.COM

1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

As a wholly-owned subsidiary of Barclays PLC, which is a reporting company under the Securities Exchange Act of 1934, Barclays Bank PLC meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K,

as applied to annual reports on Form 20-F, and is therefore filing this Form 20-F with a reduced disclosure format.

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

  Name of Each Exchange                                 
On Which Registered

2.650% Fixed Rate Senior Notes due 2021

  New York Stock Exchange

Floating Rate Notes due 2021

  New York Stock Exchange

5.140% Lower Tier 2 Notes due October 2020

  New York Stock Exchange

iPath® Bloomberg Commodity Index Total ReturnSM ETN

  NYSE Arca

iPath® Bloomberg Cocoa Subindex Total ReturnSM ETN

  NYSE Arca

iPath® S&P GSCI® Crude Oil Total Return Index ETN

  NYSE Arca

iPath® S&P 500 VIX Short-Term FuturesTM ETN

  NYSE Arca

iPath® S&P 500 VIX Mid-Term FuturesTM ETN

  NYSE Arca

iPath® US Treasury Steepener ETN

  NASDAQ

iPath® US Treasury Flattener ETN

  NASDAQ

iPath® US Treasury 2-year Bull ETN

  NASDAQ

iPath® US Treasury 2-year Bear ETN

  NASDAQ


iPath® US Treasury 10-year Bull ETN

  NASDAQ

iPath® US Treasury 10-year Bear ETN

  NASDAQ

iPath® US Treasury Long Bond Bull ETN

  NASDAQ

iPath® US Treasury Long Bond Bear ETN

  NASDAQ

iPath® Pure Beta Broad Commodity ETN

  NYSE Arca

iPath® Pure Beta Crude Oil ETN

  NYSE Arca

iPath® US Treasury 5-year Bull ETN

  NASDAQ

iPath® US Treasury 5-year Bear ETN

  NASDAQ

iPath® S&P 500 Dynamic VIX ETN

  NYSE Arca

iPath® S&P MLP ETN

  NYSE Arca

iPath® Series B S&P GCSI Crude Oil Return Index ETN

  NYSE Arca

iPath® Series B Bloomberg Agriculture Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Aluminum Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Coffee Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Copper Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Cotton Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Energy Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Grains Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Industrial Metals Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Livestock Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Nickel Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Platinum Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Precious Metals Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Softs Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Sugar Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Tin Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B Bloomberg Natural Gas Subindex Total ReturnSM ETN

  NYSE Arca

iPath® Series B S&P 500 VIX Short-Term FuturesTM ETNs

  CBOE BZX Exchange

iPath® Series B S&P 500 VIX Mid-Term FuturesTM ETNs

  CBOE BZX Exchange

Barclays ETN+ S&P 500® VEQTOR™ ETN

  NYSE Arca

Barclays ETN+ Shiller CAPETM ETNs

  NYSE Arca

Barclays ETN+ Select MLP ETN

  NYSE Arca

Barclays ETN+ FI Enhanced Europe 50 ETN

  NYSE Arca

Barclays ETN+ FI Enhanced Global High Yield ETN

  NYSE Arca

Barclays ETN+ FI Enhanced Europe 50 ETN Series B

  NYSE Arca

Barclays Women in Leadership ETN

  NYSE Arca

Barclays Return on Disability ETN

  NYSE Arca

Barclays Inverse US Treasury Composite ETN

  NASDAQ

 

*

Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements to the Securities and Exchange Commission.


Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuers’ classes of capital or common stock as of the close of the period covered by the annual report.

 

£1 ordinary shares      2,342,558,515  
£1 preference shares      1,000  
100 preference shares      31,856  
$100 preference shares      58,133  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes     No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.

Yes     No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     No

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large Accelerated Filer   Accelerated Filer   Non-Accelerated Filer   Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

*Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board 

Other

*If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17

Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes     No


SEC Form 20-F Cross reference information

 

Form 20-F item number

  

Page and caption references

in this document*

1      Identity of Directors, Senior Management and Advisers    Not applicable
2      Offer Statistics and Expected Timetable    Not applicable
3      Key Information   
  A.    Selected financial data    Omitted
  B.    Capitalization and indebtedness    Not applicable
  C.    Reason for the offer and use of proceeds    Not applicable
  D.    Risk factors    22-29
4      Information on the Company   
  A.    History and development of the company    Omitted
  B.    Business overview    124-126 (Note 4), 244-247
  C.    Organizational structure    209-210 (Note 36)
  D.    Property, plants and equipment    176-177 (Note 22)
4A      Unresolved staff comments    Not applicable
5      Operating and Financial Review and Prospects   
  A.    Operating results    10, 244-245
  B.    Liquidity and capital resources    Omitted
  C.    Research and development, patents and licenses, etc.    Omitted
  D.    Trend information   
  E.    Off-balance sheet arrangements    Omitted
  F.    Tabular disclosure of contractual obligations    Omitted
  G.    Safe harbor    ii (Forward-looking statements)
6      Directors, Senior Management and Employees   
  A.    Directors and senior management    Omitted
  B.    Compensation    Omitted
  C.    Board practices    5-8, 11-12
  D.    Employees    Omitted
  E.    Share ownership    Omitted
7      Major Shareholders and Related Party Transactions   
  A.    Major shareholders    Omitted
  B.    Related party transactions    Omitted
  C.    Interests of experts and counsel    Not applicable
8      Financial Information   
  A.    Consolidated statements and other financial information    106-112, 113-230
  B.    Significant changes    Not applicable
9      The Offer and Listing   
  A.    Offer and listing details    Not applicable
  B.    Plan of distribution    Not applicable
  C.    Markets    Not applicable
  D.    Selling shareholders    Not applicable
  E.    Dilution    Not applicable
  F.    Expenses of the issue    Not applicable
10      Additional Information   
  A.    Share capital    Not applicable
  B.    Memorandum and Articles of Association    195-198 (Note 30), 231-235
  C.    Material contracts    Not applicable
  D.    Exchange controls    239
  E.    Taxation    236-239


  F.    Dividends and paying assets    Not applicable
  G.    Statement by experts    Not applicable
  H.    Documents on display    239
  I.    Subsidiary information    209-210 (Note 36)
11      Quantitative and Qualitative Disclosure about Market Risk    17, 25, 33-34, 70-72
12      Description of Securities Other than Equity Securities   
  A.    Debt Securities    Not applicable
  B.    Warrants and Rights    Not applicable
  C.    Other Securities    Not applicable
  D.    American Depositary Shares    Not applicable
13      Defaults, Dividends Arrearages and Delinquencies    Not applicable
14      Material Modifications to the Rights of Security Holders and Use of Proceeds    Not applicable
15      Controls and Procedures   
  A.    Disclosure controls and procedures    241
  B.    Management’s annual report on internal control over financial reporting    2-3
  C.    Attestation report of the registered public accounting firm    Not applicable
  D.    Changes in internal control over financial reporting    3
16A      Audit Committee Financial Expert    Omitted
16B      Code of Ethics    Omitted
16C      Principal Accountant Fees and Services    12, 220 (Note 42), 240
16D      Exemptions from the Listing Standards for Audit Committees    Not applicable
16E      Purchases of Equity Securities by the Issuer and Affiliated Purchasers    10
16F      Change in Registrant’s Certifying Accountant    Not applicable
16G      Corporate Governance   

4-9

17      Financial Statements    Not applicable (See Item 8)
18      Financial Statements    Not applicable (See Item 8)
19      Exhibits    Exhibit Index

 

*

Certain items are indicated as omitted as Barclays Bank PLC is a wholly owned subsidiary of Barclays PLC, which is a reporting company under the Securities Exchange Act of 1934, and meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K, as applied to annual reports on Form 20-F, and is therefore filing this Form 20-F with a reduced disclosure format.


Notes

The term Barclays Bank Group refers to Barclays Bank PLC together with its subsidiaries. Unless otherwise stated, the income statement analysis compares the year ended 31 December 2018 to the corresponding twelve months of 2017 and balance sheet analysis as at 31 December 2018 with comparatives relating to 31 December 2017. The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of Pounds Sterling respectively; the abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of US Dollars respectively; the abbreviations ‘m’ and ‘bn’ represent millions and thousands of millions of Euros respectively.

There are a number of key judgement areas, for example impairment calculations, which are based on models and which are subject to ongoing adjustment and modifications. Reported numbers reflect best estimates and judgements at the given point in time.

Relevant terms that are used in this document but are not defined under applicable regulatory guidance or International Financial Reporting Standards (IFRS) are explained in the results glossary included in this annual report on Form 20-F.

The information in this announcement, which was approved by the Board of Directors on 20 February 2019, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018, which contain an unqualified audit report under Section 495 of the Companies Act 2006 (which does not make any statements under Section 498 of the Companies Act 2006) will be delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

Barclays Bank Group is a frequent issuer in the debt capital markets and regularly meets with investors via formal road-shows and other ad hoc meetings. Consistent with its usual practice, Barclays expects that from time to time over the coming quarter it will meet with investors globally to discuss these results and other matters relating to the Barclays Bank 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 Barclays Bank Group. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results or other financial condition or performance measures could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as ‘may’, ‘will’, ‘seek’, ‘continue’, ‘aim’, ‘anticipate’, ‘target’, ‘projected’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, ‘achieve’ or other words of similar meaning. Examples of forward-looking statements include, among others, statements or guidance regarding or relating to the Barclays Bank Group’s future financial position, income growth, assets, impairment charges, provisions, business strategy, capital, leverage and other regulatory ratios, payment of dividends (including dividend payout ratios and expected payment strategies), projected levels of growth in the banking and financial markets, projected costs or savings, any commitments and targets, estimates of capital expenditures, plans and objectives for future operations, projected employee numbers, IFRS 9 impacts and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. These may be affected by changes in legislation, the development of standards and interpretations under International Financial Reporting Standards including the continuing impact of IFRS 9 implementation, evolving practices with regard to the interpretation and application of accounting and regulatory standards, the outcome of current and future legal proceedings and regulatory investigations, future levels of conduct provisions, the policies and actions of governmental and regulatory authorities, geopolitical risks and the impact of competition. In addition, factors including (but not limited to) the following may have an effect: capital, leverage and other regulatory rules applicable to past, current and future periods; UK, US, Eurozone and global macroeconomic and business conditions; the effects of any volatility in credit markets; market related risks such as changes in interest rates and foreign exchange rates; effects of changes in valuation of credit market exposures; changes in valuation of issued securities; volatility in capital markets; changes in credit ratings of any entities within the Barclays Bank Group or any securities issued by such entities; the potential for one or more countries exiting the Eurozone; instability as a result of the exit by the United Kingdom from the European Union and the disruption that may subsequently result in the UK and globally; and the success of future acquisitions, disposals and other strategic transactions. A number of these influences and factors are beyond the Barclays Bank Group’s control. As a result, the Barclays Bank Group’s actual future results, dividend payments, and capital and leverage ratios may differ materially from the plans, goals, expectations and guidance set forth in the Barclays Bank Group’s forward-looking statements.

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

Market and other data

This document contains information, including statistical data, about certain Barclays markets and its competitive position. Except as otherwise indicated, this information is taken or derived from Datastream and other external sources. Barclays cannot guarantee the accuracy of information taken from external sources, or that, in respect of internal estimates, a third party using different methods would obtain the same estimates as Barclays.

Uses of Internet addresses

This document contains inactive textual addresses to internet websites operated by us and third parties. Reference to such websites is made for information purposes only, and information found at such websites is not incorporated by reference into this document.


Governance

Chairman’s introduction

It is my pleasure to present the 2018 corporate governance report for Barclays Bank PLC (‘BBPLC’ or the ’Company’), the first since the Company was established as Barclays’ non-ring fenced bank on 1 April 2018.

This year has been very busy for the BBPLC Board and the executive, with a significant amount of change and focus on establishing an effective new structure following structural reform.

The Bank began the year by overseeing the transfer of Barclays Bank UK retail banking business to Barclays Bank UK PLC, the first UK bank to deliver a ring fenced banking structure. The Board oversaw the successful implementation of a governance framework that establishes the interactions between the Boards and executives of the Company, Barclays and Barclays Bank UK. This included a wholesale overhaul of the Board whereby all directors common to the Barclays PLC Board, with the exception of myself, Jes Staley and Tushar Morzaria* stepped away from the Company’s Board. This signified the separation of the governance of the main operating business from Barclays. In the months preceding structural reform, I was engaged in setting up a divisional board of independent non-executive directors in waiting. The divisional directors were recruited, inducted and prepared for their role as the Company’s Board following separation, effective 1 April 2018. The Company’s independent Board, together with a dedicated executive management, are charged with delivering the strategic objectives of the Barclays International business through the Company and its operating subsidiaries.

Since the new structure was implemented, the members of the Board have adhered to the highest standards of corporate governance in directing the Company’s affairs in discharge of their statutory duties and regulated responsibilities. As a Board, we aspire to meet the highest standards of corporate governance and as a non-premium listed company, whilst we do not choose to voluntarily comply with the UK Corporate Governance Code (the Code), we have established a governance framework based on the standards of good practice set out in the Code. The Board does have a statutory duty to promote the success of the Company and to have regard to the long-term consequences of its decisions, and the impact of those decisions, on stakeholder interests.

The Board is absolutely committed to ensuring the Company is able to meet its regulatory responsibilities and maintains an open and transparent dialogue with the regulators.

Board Activities

The Board has spent time familiarising itself with the business and has received a number of targeted inductions and teach-ins from the Barclays International businesses and functions.

The Board has considered a number of specific business items including the Barclays International Strategy and Medium Term Plan that were both considered at a number of meetings before approval.

The resilience of the Barclays International controls environment and technology has been an item of focus, so too has the Company’s ability to provide products and services to clients following the UK’s decision to leave the European Union.

Our Company’s culture is built on a set of strong values and we embody these values in everything that we do. I believe that the Board plays a vital role through effective governance and the measurement of conduct to ensure this continues. During the year, the Board has considered the Company’s culture, values and behaviours, which are set out in Barclays’ Purpose and Values and The Barclays Way, and embedded throughout Barclays International. The CEO, Compliance and HR teams have spent considerable time developing the approach and the Board has played an active and engaged role in helping to shape that direction.

The Board has also reviewed and approved the Barclays International Reward Policy, following recommendation from the Remuneration Committee.

Leadership

Individual roles on the Board and their responsibilities are set out in the Barclays Bank Charter of Expectations. Directors are expected to provide rigorous and constructive challenge on matters that, owing to their strategic, financial or reputational implications or consequences, are considered significant to the Company.

Appointment and Retirement of Directors

The appointment and retirement of directors is governed by the company’s articles of association (the articles), the Companies act 2006 and related legislation.

The articles may only be amended by a special resolution of the shareholders. The BBPLC Board has the power to appoint additional Directors or to fill a casual vacancy amongst the Directors. Any such Director holds office only until the next AGM and may offer himself/herself for re-election. All Directors will stand for election or re-election at the 2019 AGM.

* Tushar Morzaria resigned from the BBPLC Board on 10 August 2018 when regulatory approval was received for Steven Ewart as BBPLC CFO. Jes Staley resigned from the BBPLC Board on 31 January 2019 when regulatory approval was received for Tim Throsby as BBPLC CEO.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    1


Governance

Chairman’s introduction

 

 

Effectiveness

The skills, knowledge and experience needed for an effective BBPLC Board are recorded on a skills matrix, which is used by the BBPLC Board Nominations Committee to inform Director recruitment, induction and ongoing development. The BBPLC Board Nominations Committee regularly considers BBPLC Board and senior management succession plans. Appointments to the BBPLC Board were made via a formal, rigorous and transparent process, based on merit, taking into account the skills, experience and diversity needed on the BBPLC Board in the context of Barclays’ Group strategic direction.

As at the date of this report, there are three female directors on the Board meaning we have achieved our goal of 33% female representation on the Board ahead of the 2020 target date. The BBPLC Board is committed to regularly reviewing its broad diversity profile.

We stood up the BBPLC Board in April this year and it now comprises six independent non-executive directors, two executive directors and myself as Chairman. The Company considers the composition of principal BBPLC Board Committees to meet the independence criteria of the Code and there is appropriate cross-membership on the BBPLC Board Committees to further promote effectiveness.

All directors are expected to commit sufficient time to fulfil their duties to Barclays Bank PLC. This includes attending, and being well-prepared for, all Board and Board Committee meetings, as well as making time to understand the business and meet with executives. The Barclays Bank BBPLC Charter of Expectations sets out responsibilities for providing the BBPLC Board with accurate, timely and high-quality information necessary for it to fulfil its duties.

The BBPLC Board takes the quality of its performance seriously and despite the fact that the BBPLC Board has effectively changed almost entirely during the year, I considered it beneficial to engage an independent person to conduct an evaluation of the BBPLC Board in early 2019 to assess the performance and functionality of the BBPLC Board and the individual BBPLC Board members.

Accountability

The BBPLC Board is responsible for setting Barclays Bank Group risk appetite within the overall parameters set by the Barclays Group, that is, the level of risk it is prepared to take in the context of achieving Barclays’ Group strategic objectives. Barclays’ Group Enterprise Risk Management Framework is designed to identify and set minimum requirements in respect of the main risks to achieving the Barclays’ strategic objectives and to provide reasonable assurance that internal controls are effective.

The BBPLC Board, assisted by its Risk Committee, conducts robust assessments of the principal risks facing Barclays Bank PLC, including those that would threaten its business model, future performance, solvency or liquidity.

The BBPLC Board Audit Committee, comprising independent non-executive Directors, oversees the effectiveness of Barclays Bank PLC internal and external auditors.

The Directors also review the effectiveness of the Barclays Bank Group’s systems of internal control and risk management.

The BBPLC Board has put in place processes to support the presentation to stakeholders of fair, balanced and understandable information.

Controls over financial reporting

A framework of disclosure controls and procedures is in place to support the approval of the financial statements of the Barclays Bank Group. Specific governance committees are responsible for examining the financial reports and disclosures to ensure that they have been subject to adequate verification and comply with applicable standards and legislation.

These committees report their conclusions to the BBPLC Board Audit Committee, which debates its conclusions and provides further challenge. Finally, the BBPLC Board scrutinises and approves results announcements and the Barclays Bank PLC Annual Report, and ensures that appropriate disclosures have been made. This governance process ensures that both management and the BBPLC Board are given sufficient opportunity to debate and challenge the financial statements of the Barclays Bank Group and other significant disclosures before they are made public.

Management’s report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed under the supervision of the principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and issued by the International Accounting Standards Board (IASB).

 

 

2    Barclays Bank PLC 2018 Annual Report on Form 20-F  


    

    

 

 

Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail,

 

Accurately and fairly reflect transactions and dispositions of assets.

 

Provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorisations of management and the respective Directors.

 

Provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of assets that could have a material effect on the financial statements.

Internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the internal control over financial reporting as of 31 December 2018. In making its assessment, management utilised the criteria set out in the 2013 COSO framework and concluded that, based on its assessment, the internal control over financial reporting was effective as of 31 December 2018.

The system of internal financial and operational controls is also subject to regulatory oversight in the UK and overseas. Further information on supervision by the financial services regulators is provided under Supervision and Regulation in the Risk review section on pages 93 to 102.

Changes in internal control over financial reporting

There have been no changes in the Barclays Bank Group’s internal control over financial reporting which have materially affected or are reasonably likely to materially affect the Barclays Bank Group’s internal control over financial reporting during the year. The Barclays Bank Group adopted IFRS 9 on 1 January 2019 and has updated and modified certain controls over financial reporting as a result of the new accounting standard, embedding them into the existing control environment.

Remuneration

The BBPLC Board Remuneration Committee (Remuneration Committee), comprising independent non-executive Directors, reviews and adopts the Group Remuneration Policy for use in the Barclays Bank Group.

Engagement

In a business like ours where the Company is dependent on client relationships and the services provided to our clients, it is vital that we hold true to our values and do the right thing. This extends to engaging meaningfully with our stakeholders. Together with the Chief Executive Officer, I have been actively engaging with clients across our diversified transatlantic Bank, in many of our international locations, illustrating our commitment to clients and our people in the jurisdictions in which we operate.

As a Board, we regularly hold and attend employee and citizenship events, to encourage the culture of inclusiveness and ensure employees are engaged and aligned to the strategy of the business.

In 2018 the BBPLC Board members attended a number of key initiatives for clients and employees, these range from talent events, the inaugural Women’s Managing Director Conference held in London, a Citizenship programme in New York showcasing Unreasonable Impact Brain Trust and opening the proceedings at the Barclays Asia Forum in Singapore.

The Company has been through an enormous amount of change in the year and our people have been asked to do an awful lot to make the transition to an independent Barclays Bank PLC Board effective. There is still a significant amount to do in 2019 as we look to execute the Barclays International strategy.

Sir Gerry Grimstone

Chairman

20 February 2019

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    3


Governance

Corporate governance statement

Current Directors

Sir Gerry Grimstone - Chairman

Jeremy Scott - Board Audit Committee Chair

Peter Bernard - Board Risk Committee Chair

Hélène Vletter-van Dort - Board Remuneration Committee Chair

Steven Ewart - CFO

Helen Keelan

Maria Richter

Tim Throsby - CEO

Alex Thursby

The Board

We act in a way that we consider promotes the success of Barclays Bank PLC (the ‘Company’ or ‘BBPLC’) for the benefit of its shareholder, and are accountable to our shareholder for creating and delivering sustainable value. It is our responsibility as the BBPLC Board to ensure that management deliver on short-term objectives, whilst promoting the long-term growth of the Company and the Barclays Group. We are also responsible for ensuring that management maintains an effective system of internal control. An effective system of internal control should provide assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. In meeting this responsibility, we consider what is appropriate for the Company’s business and reputation, the materiality of financial and other risks and the relevant costs and benefits of implementing controls.

As part of the Barclays Group Structural Reform Programme (SRP), the current BBPLC Board was stood up on 1 April 2018#. Prior to 1 April 2018, the Company’s Board mirrored that of Barclays PLC (BPLC), however, with the exception of Sir Gerry Grimstone, all other directors of BPLC have resigned from the Board. The current Board had previously operated as a non-statutory divisional board for the Barclays International business division with the primary focus of becoming familiar with the Company’s business, risk, control and governance arrangements ahead of stand up post SRP. The Board has approved a Schedule of Matters Reserved to the Board which specifies those decisions to be taken by the Board, including but not limited to material decisions relating to strategy, risk appetite, medium term plans, capital and liquidity plans, risk management and controls frameworks, approval of financial statements, approval of share allotments and dividends. The Board is also responsible for the establishment and composition of the Board Committees, succession planning for the BBPLC Board and certain senior management, approval of major transactions and the appointment and removal of certain senior executives. The Board has delegated the responsibility for making and implementing operational decisions and running the Company’s business on a day-to-day basis to the BBPLC Chief Executive and his senior management team.

 

Director   Eligible Meeting Attendance
John McFarlane*   4/4
Mike Ashley*   4/4
Tim Breedon*   4/4
Sir Ian Cheshire*   4/4
Mary Francis*   4/4
Crawford Gillies*   4/4
Michael Turner*   4/4
Reuben Jeffrey III*   4/4
Matthew Lester*   4/4
Tushar Morzaria**   5/8
Dambisa Moyo*   3/4
Diane Schueneman*   4/4
Jes Staley***   8/11
Sir Gerry Grimstone   11/11
Peter Bernard   7/7
Steven Ewart**   3/3
Helen Keelan   7/7
Maria Richter   6/7
Jeremy Scott   7/7
Tim Throsby***   7/7
Alex Thursby   7/7
Hélène Vletter-van Dort   7/7

# On 1 April 2018, the only Directors of Barclays PLC that remained on the Barclays Bank PLC Board were Sir Gerry Grimstone (Chairman), Jes Staley and Tushar Morzaria in their capacities as BBPLC CEO and BBPLC CFO respectively. Jes Staley resigned from the BBPLC Board on 31 January 2019 when regulatory approval was received for Tim Throsby as BBPLC CEO. Tushar Morzaria resigned from the BBPLC Board on 10 August 2018 when regulatory approval was received for Steven Ewart as BBPLC CFO.

* Following the implementation of Structural Reform the Barclays PLC Directors resigned from the Barclays Bank PLC Board once the Barclays International Divisional Board were appointed.

** Following Steven Ewart’s appointment as Chief Financial Officer of Barclays Bank PLC and required regulatory approval, Tushar Morzaria resigned as Chief Financial Officer and Director Barclays Bank PLC, remaining as Finance Director of Barclays PLC.

*** Following Tim Throsby’s appointment as Chief Executive Officer of Barclays Bank PLC and required regulatory approval, Jes Staley resigned as Chief Executive Officer and Director Barclays Bank PLC, remaining as Chief Executive Officer and Director of Barclays PLC.

 

 

4    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Governance

Corporate governance statement

 

 

What we did in 2018

During 2018, the Board focused on the following specific areas:

 

 

  Strategy formulation and monitoring

 

 

Received deep dive presentations by each area of the Barclays International business and functions, this included but was not restricted to Banking, Markets, Corporate Banking, Private Banking and Overseas Services and Cards & Payments.

 

Provided with an overview of Structural Reform and their legal and regulatory duties as directors of a non-ring-fenced bank.

 

Discussed and debated strategic projects and provided input to management on the formulation of the Company’s strategy as part of the overall Barclays Group strategy, and reflected on the Company’s strategy with longer-term views on what could be done to accelerate returns and build allocated capital effectively.

 

Discussed and considered the transfer of the Barclays UK business from the Company to Barclays Bank UK PLC under the Ring-fencing Transfer Scheme.

 

Discussed and considered the impact of the UK’s decision to leave the EU and the transfer of the Company’s European business to Barclays Bank Ireland PLC under the European Referendum Response Programme.

 

Discussed regular updates from the BBPLC Chief Executive and BBPLC President/Barclays International CEO on the progress being made against the BBPLC strategy, key strategic projects and the recruitment of the top industry talent.

 

  Finance and Liquidity

 

 

 Debated, assessed and approved the BBPLC Medium Term Plan for 2018-2020.

 

Regularly assessed financial performance of the various businesses, the BBPLC results through reports from the BBPLC Chief Finance Officer and within the business specific updates to the Board and furthermore providing guidance to senior management.

 

Reviewed and approved BBPLC’s financial results prior to publication, including approving the interim announcement and dividend to the shareholder.

 

Provided input, guidance and advice to senior management on the BBPLC Medium Term Plan 2019-2021 and subsequently approved the final plan.

 

  Governance and risk (including regulatory issues)

 

 

Delegated authority to the BBPLC Board Risk Committee to consider and recommend, on behalf of the Board, the adoption by the Company of the Internal Capital Adequacy Assessment Process and Internal Liquidity Adequacy Assessment Process.

 

Received reports on Barclays’ operational and technology capability, including specific updates on cyber risk capability and resilience, and a service management update from services provided by Barclays Services Limited, the Group services company.

 

Considered and approved appointments to the BBPLC Board and BBPLC Board Committees following recommendation from the BBPLC Board Nominations Committee.

 

Received regular reports from the Chairs of each BBPLC Board Committee. See the reports from the BBPLC Board Committee Chairs below and on the following page.

 

Discussed the BBPLC Board and BBPLC Board Committee governance framework in the context of structural reform and other corporate governance matters.

 

Adopted the risk limits and mandates within the parameters of the risk appetite set by the Barclays Group.

Board Committees

The main BBPLC Board Committees are the BBPLC Board Audit Committee, the BBPLC Board Nominations Committee, the BBPLC Board Remuneration Committee, and the BBPLC Board Risk Committee. Pursuant to authority granted under our Articles of Association, each BBPLC Board Committee has had specific responsibilities delegated to it by the BBPLC Board. You can read about what each of the BBPLC Board Committees did during 2018 on the following pages.

Board Audit Committee

On 1 April 2018 with the completion of structural reform the separate board of Barclays Bank PLC and its Committees was stood up, including the BBPLC Board Audit Committee (Audit Committee). As part of this process the Audit charter for the Audit Committee and the working arrangements and allocation of responsibilities between the Barclays PLC Board Audit Committee and the Barclays Bank PLC Board Audit Committee were agreed. The Chairs of these two committees along with the Chair of the Barclays Bank UK PLC Board Audit Committee have met regularly to share relevant information and to ensure both the efficient workings of the respective committees as well as the appropriate coverage of responsibilities. In addition, regular dialogue has been held with the Audit Committees of Barclays Bank PLC’s major subsidiaries.

The BBPLC Board Audit Committee is composed solely of independent non-executive Directors, with membership designed to provide the breadth of financial expertise and commercial acumen it needs to fulfil its responsibilities. Its members as a whole have recent and relevant experience of the banking and financial services sector, in addition to general management and commercial experience, and are financially literate. The Audit Committee is chaired by Jeremy Scott who has over 40 years accounting and audit experience. Peter Bernard, Helen Keelan and Alex Thursby are also members. The Audit Committee met three times prior to the stand-up of the new BBPLC Board and BBPLC Board Committees in April 2018, and since stand-up has met five times, with two of the meetings held in New York and one in Hong Kong. Audit Committee meetings are attended by management, including the Chief Financial Officer, Chief Compliance Officer, Chief Controls Officer, Chief Operating Officer, Chief Internal Auditor and BBPLC General Counsel and the Company’s External Auditors, KPMG, as appropriate. The Audit Committee held a number of separate private sessions with each of the Chief Internal Auditor and the lead external audit partner, which were not attended by management.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    5


    

    

 

 

Member   Eligible Meeting Attendance
Mike Ashley   3/3
Tim Breedon   3/3
Crawford Gillies   3/3
Matthew Lester   3/3
Diane Schueneman   3/3
Jeremy Scott   5/5
Peter Bernard   5/5
Helen Keelan   5/5
Alex Thursby   5/5

The principal role and responsibilities of the Audit Committee, pursuant to the Terms of Reference, are:

Financial Reporting: assessing the integrity of the Barclays Bank Group’s financial statements and reviewing any significant financial reporting issues and judgments encountered or made in the preparation of the Company’s, interim report, annual report and accounts;

Internal Controls: reviewing the effectiveness of the Barclays Bank Group’s system of internal controls;

Internal Audit: monitoring and reviewing the effectiveness, independence and objectivity of the Internal Audit function and reviewing reports on internal audit activities and the responsiveness of management to internal audit findings and recommendations;

Regulatory Reporting: reviewing arrangements established by management for compliance with regulatory financial reporting;

External Audit: reviewing and monitoring the independence, objectivity and effectiveness of the external auditor’s audit process, including oversight of the provision of non-audit services for Barclays Bank Group;

Whistleblowing: reviewing the integrity, independence and effectiveness of the Barclays Bank Group’s policies and procedures on whistleblowing; and

Material Legal Matters: maintaining oversight of material legal contentious matters and current or emerging legal risks.

During 2018, the principal activities of the Audit Committee included:

Monitoring the implementation of IFRS9 and the transitional impact;

Assessing the appropriateness of key management judgments and any material conduct provisions;

Monitored the valuation methods applied by management to significant valuation items;

Overseeing the performance of the internal audit function, including the consideration of an independent quality assurance report on its performance;

Receiving deep dives reviews into areas of the business where adverse internal audit reports have been issued and monitoring the progress of management to implement suggested improvements;

Discussing and receiving updates from the BBPLC Chief Controls Officer on the BBPLC internal controls and framework;

Monitoring management progress on the development of the Barclays Control Framework and the Risk Control Self-Assessment framework;

Considering and adopting the Barclays Group policy on the provision of non-audit services by the Barclays Group’s statutory auditor;

Monitoring the Whistleblowing programme and receiving regular Whistleblowing metrics as they relate to the Barclays Bank Group and ensuring that the procedures for protection from detrimental treatment of staff who raise concerns continue to be effective;

Reviewing the interim results, including considering the half-year dividend to shareholders; and

Receiving updates on financial crime activity impacting the Barclays Bank Group during 2018.

A comprehensive internal control framework is in place in the Barclays Bank Group and the Audit Committee receives regular reports on its operation (and its continued enhancement). This includes reports from both the Internal Audit function and External Auditors as well as related plans and management actions to remediate control recommendations raised in those reports. The Audit Committee receives reports at a majority of the meetings from the Chief Controls Officer on the control environment with briefings on relevant topics as processes and approaches are refined within the new post Structural Reform framework. The Chief Controls Officer has kept the Audit Committee apprised of the results of Risk and Control Self Assessments and improvements made in these processes. The Audit Committee has requested, and received, deep dives on particular business units, including where audit reports highlighted particular control enhancements being desirable.

 

 

6    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Governance

Corporate governance statement

 

 

Board Nominations Committee

The BBPLC Board Nominations Committee (Nominations Committee) is composed of a majority of independent non-executive directors. Sir Gerry Grimstone, as Chairman of the BBPLC Board, Peter Bernard, Jeremy Scott and Hélène Vletter-van Dort, being the Chairs of each of the other BBPLC Board Committees are also members.

The Nominations Committee met once prior to the stand-up of the new BBPLC Board and BBPLC Board Committees in April 2018 and since stand-up has met once at the Barclays’ offices in New York. Attendance by the Nominations Committee members is shown in the table below, and Nominations Committee meetings are attended by the Chief Executive Officer, President of BBPLC, BBPLC HR Director, the BBPLC Head of Talent as appropriate.

 

Member   Eligible Meeting Attendance
John McFarlane   1/1
Mike Ashley   1/1
Tim Breedon   1/1
Sir Ian Cheshire   1/1
Crawford Gillies   1/1
Reuben Jeffrey III   1/1
Sir Gerry Grimstone   2/2
Jeremy Scott   1/1
Peter Bernard   1/1
Hélène Vletter-van Dort   1/1

The principal role and responsibilities of the Nominations Committee, pursuant to the Terms of Reference, are:

Board Appointments to the BBPLC Board, its Committees and its significant subsidiaries;

Composition of the BBPLC Board and its Committees;

Succession planning and talent management;

Board Effectiveness;

Serving Directors tenure;

Board induction and training;

Conflicts of Interest; and

Governance Matters.

During 2018, the principal activities of the Committee included:

Reviewing the Senior Manager appointments for BBPLC, and monitoring the progress of any remaining applications.

Reviewing the BBPLC Board and BBPLC Board Committee composition, taking into account time commitment, skills, knowledge, experience and diversity of the Directors, and identifying any desirable skills to aid the Company in operating and competing effectively.

Review and approval of proposed changes to the Board of a number of the Company’s significant subsidiaries, including but not limited to reviewing the composition of the Board of Barclays Bank Ireland PLC, and approving the appointment of additional directors to ensure the company has sufficient skills and experience to take forward and implement the Barclays Group strategy in Europe.

Receiving updates on the talent and succession management principles in place for the Company, the succession planning review process for the BBPLC Executive Committee and the global Group campaigns to promote a diverse and inclusive workforce, including the Barclays Encore Programme.

Board Remuneration Committee

Following the completion of structural reform on 1 April 2018, the Barclays Bank PLC Remuneration Committee was stood up. In the first year of operation, the Barclays Bank PLC Remuneration Committee has initially focused on reviewing and adopting Barclays Group Remuneration Policies and Standards, the Remuneration Control Framework and the Material Risk Takers methodology. As part of this process, consideration was given to the appropriateness of the Barclays Group approach at the operating entity level. During the year there has been close collaboration between the Barclays Bank PLC Remuneration Committee and the Barclays PLC Remuneration Committee in establishing the delegated authority decisions framework exercised by Barclays Bank PLC Remuneration Committee as part of the wider Barclays Group Remuneration process. This collaboration has extended to careful agenda setting to ensure efficient workings and sequencing of approvals between the Barclays Bank PLC Remuneration Committee and the Barclays PLC Remuneration Committee. In addition, there has been open dialogue between the Chairs of the Barclays Bank PLC Remuneration Committee and the Barclays PLC Remuneration Committee.

The BBPLC Board Remuneration Committee (Remuneration Committee) is comprised solely of independent non-executive directors of the BBPLC Board. The Remuneration Committee is chaired by Hélène Vletter-van Dort. Helen Keelan, Maria Richter and Alex Thursby are also members.

The principle role and responsibilities of the Remuneration Committee, pursuant to the Terms of Reference, is to:

Adopt the over-arching principles of remuneration policy for the Barclays Bank Group within the parameters set by the BPLC Remuneration Committee;

Consider and endorse the incentive pool for the Company and its subsidiaries and the remuneration of key BBPLC executives and other specified individuals as determined by the Remuneration Committee from time to time;

Exercise oversight of remuneration issues within the Barclays Bank Group and of matters that more generally concern people and culture within the Barclays Bank Group; and

Approve the remuneration and compensation arrangement of employees that fall within the remit of the Remuneration Committee.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    7


    

    

 

 

The Remuneration Committee met three times prior to the stand-up of the new BBPLC Board and Committees in April 2018 and since stand-up has met three times. Attendance by the Remuneration Committee members is shown in the table below. Remuneration Committee meetings are attended by management, including the Chief Executive Officer and the Human Resources Director.

 

Member   Eligible Meeting Attendance
Crawford Gillies   2/2
Tim Breedon   2/2
Mary Francis   2/2
Dambisa Moyo   2/2
Hélène Vletter-van Dort   3/3
Helen Keelan   3/3
Maria Richter   2/3
Alex Thursby   3/3

During the period, the Remuneration Committee’s activities have included:

Approving the Terms of Reference, Reward Policy and Standard Remuneration Committee Control Framework (and revisions), Material Risk Taker Identification Methodology, 2018 Incentive Funding Frameworks;

Endorsing the funding ratio;

Approving the 2018 Ex Ante Risk Adjustment Approach and US Covered employee methodology;

Receiving regular stakeholder, regulatory and legal updates, financial and risk performance updates, pay round timings and approach, Fair Pay Agenda; and

Reviewing specific remuneration arrangements for individuals within the Remuneration Committee’s remit.

Board Risk Committee

On 1 April 2018 with the completion of structural reform, the separate board of Barclays Bank PLC and its Committees were stood up, including the Barclays Bank PLC Board Risk Committee (Risk Committee). Unlike the Board and Committee structure of Barclays PLC, Barclays Bank PLC does not have a separate Board Reputation Committee, and instead oversight of Reputation and Conduct matters are considered at the Barclays Bank PLC Board Risk Committee. As part of the stand-up process, there has been close collaboration in Agenda setting to ensure efficient workings and sequencing of approvals between the Barclays Bank PLC Board Risk Committee and the Barclays PLC Board Risk Committee. In addition, there is open dialogue between the Chairs of the Barclays Bank PLC Board Risk Committee and the Barclays PLC Board Risk and Reputation Committee Chairs.

The BBPLC Board Risk Committee is composed solely of independent non-executive directors and is chaired by Peter Bernard. Jeremy Scott, Maria Richter and Hélène Vletter-van Dort are also members. The Risk Committee met three times prior to the stand-up of the new BBPLC Board and Committees in April 2018 and since stand-up has met five times, with two of the meetings held in New York and one in Hong Kong. The Risk Committee has spent its time reviewing the risk profile and risk appetite of the Barclays Bank Group key risk issues and internal control and risk policies. Risk Committee meetings are attended by management, including the Chief Financial Officer, Chief Risk Officer, Chief Compliance Officer, Chief Internal Auditor and BBPLC General Counsel and the Company’s External Auditors, KPMG.

 

Member   Eligible Meeting Attendance
Tim Breedon   3/3
Mike Ashley   3/3
Reuben Jeffrey III   2/3
Matthew Lester   3/3
Diane Schueneman   3/3
Peter Bernard   5/5
Jeremy Scott   5/5
Maria Richter   5/5
Hélène Vletter-van Dort   5/5

The principal role and responsibilities of the Risk Committee, pursuant to the Terms of Reference, are:

Risk Appetite and Risk Profile: reviewing and recommending to the BBPLC Board the risk appetite, reviewing and adopting risk limits and mandates for financial and non-financial risk, monitoring the risk profile, and receiving and considering reports on key risk issues;

Regulatory: reviewing and monitoring BBPLC’s capital and liquidity position including considering both the existing and forecasted BBPLC risk profile and the potential impact of stress;

Internal control and risk control framework: reviewing the Enterprise Risk Management Framework, approval of underlying frameworks and policies as they apply to the Company, and review of the effectiveness of the Company’s risk management systems;

Conduct Risk: reviewing effectiveness of the management of Conduct Risk and reviewing the effectiveness of the Conduct Risk Management framework as it applies to BBPLC and its subsidiaries;

Reputation Risk: reviewing the effectiveness of the management of reputation risk within Barclays Bank Group and receiving reports on significant business decisions that may impact BBPLC or Barclays reputation; and

Risk and Compliance Functions: overseeing the BBPLC Risk and Compliance functions, ensuring they are appropriately resourced and operating effectively.

 

 

8    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Governance

Corporate governance statement

 

 

 

During 2018, the principal activities of the Risk Committee included:

Reviewing regular financial and non-financial risk reporting on each of the principal risks and monitoring the risk profile in accordance with 2018 limits and mandates and monitoring compliance with key portfolio metrics;

Reviewing the capital and liquidity position of BBPLC and any challenges to the capital position;

Reviewing the key risk themes impacting BBPLC and the Barclays Group, including the impact and risks associated with the geopolitical landscape and the exposures held by the Company in certain jurisdictions and industries;

Reviewing the potential impact of European Referendum to BBPLC and the work that has been undertaken by Barclays to analyse the key risks and impacts to the Barclays Bank Group;

Reviewing and adopting relevant Group Policies, including the Enterprise Risk Management Framework and the associated frameworks;

Reviewing significant conduct and reputational risks facing Barclays Bank Group, monitoring the Conduct Risk assessment of the business to understand the Barclays Bank Group Conduct Risk profile and reviewing reports from the Transaction Review Committee on key themes and significant business transactions that have been considered from which may have a reputational impact on BBPLC or Barclays reputation; and

Keeping under review the internal audit assessment of the Risk Function and the risks associated with internal audit findings.

The Risk Committee have considered focused presentations in a number of areas specific to the business and activities of Barclays Bank Group, including a joint session held with the BBPLC Board Audit Committee on the risks and controls associated with Algo and Electronic trading, the

Leveraged Finance business and the risks associated with the UK Retirement Fund which is held by BBPLC. The Risk Committee continually considers the impact of issues on the Barclays Bank Group and reviews steps taken by the business to reduce exposures with higher levels of risk.

Diversity and Inclusion

The Board recognises the importance of ensuring that there is broad diversity among the Directors inclusive of, but not limited to, gender, ethnicity, geography and business experience. In addition, we aim to ensure that employees of all backgrounds are treated equally and have the opportunity to be successful. The Group’s global Diversity and Inclusion (D&I) strategy sets objectives, initiatives and plans across five core pillars: Gender, LGBT, Disability, Multicultural and Multigenerational, in support of that ambition. Further information on the Group’s Board Diversity Policy and D&I strategy can be found on pages 68 and 69 of the Barclays PLC Annual Report 2018.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    9


Governance

Directors’ report

The Directors present their report together with the audited accounts for Barclays Bank PLC (‘BBPLC’ or the ‘Company’) for the year ended 31 December 2018.

The particulars of important events affecting the Company since the financial year end can be found in notes to the financial statements.

Other information that is relevant to the Directors’ Report, and which is incorporated by reference into this report, can be located as follows:

 

      Pages    

  Employee involvement

   14    

  Disability

   15    

  Risk management

   19    

  Principal risks

   30    
      

Profits and dividends

The Barclays Bank Group operates through branches, offices and subsidiaries in the UK and overseas. The results of the Barclays Bank Group show profit after tax of £835m (2017: loss after tax of £1,154m). The Barclays Bank Group had net assets of £47,711m at 31 December 2018 (2017: £65,734m).

Barclays PLC will pay a full year dividend in respect of 2018 of 4p per ordinary share on 5 April 2019 to shareholders on the share register on 1 March 2019. The Company can contribute a payment towards the Barclays PLC external dividend payment, however, in this case a contribution was not required and the Directors of BBPLC do not recommend the payment of a dividend to Barclays PLC. Further details on total dividends on ordinary shares paid due 2018 are set out in Note 12 to the accounts. Dividends paid on preference shares for the year ended 31 December 2018 amounted to £204m (2017: £242m).

Share Capital

There was no increase in ordinary share capital during the year. Barclays PLC owns 100% of the issued ordinary shares. There are no restrictions on the transfer of securities or agreements between holders of securities known to the Company which may result in restrictions on the transfer of securities or voting rights. Further information on the Company’s share capital can be found in Note 30.

In 2018, the Company reduced its share capital by £12,092m by cancelling share premium and creating distributable reserves of the same amount. The capital reduction was carried out via a court-approved reduction of capital, approved by the Company’s shareholder at a general meeting on 17 July 2018. On 11 September 2018, the capital reduction became effective following confirmation by the High Court of Justice in England and Wales which was registered with the Registrar of Companies on the same day.

Repurchase of shares

The Company did not repurchase any of its ordinary shares during 2018 (2017: none). On 15 December 2018, 106,000,000 Series 5 non-cumulative callable US Dollar preference shares of US$0.25 nominal value each were redeemed in full at the option of the Company.

Powers of Directors to issue or buy back the Company’s shares

The powers of the Directors are determined by the Companies Act 2006 and the Company’s Articles of Association. No shares were issued or bought back in 2018. The Directors are authorised to issue and allot shares and to buy back shares subject to annual shareholder approval at the AGM. Such authorities were granted by shareholders at the 2018 AGM. It will be proposed at the 2019 AGM that the Directors be granted new authorities to allot and buy-back shares.

 

 

10    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Governance

Directors’ report

 

 

Directors

The Directors of the Company are listed on page 4. Changes to Directors during the year and up to the date of signing this report are set out below.

 

     

  Name

 

  

Role

 

  

Effective date of appointment/resignation    

 

  Mike Ashley    Non- executive Director    Resigned 1 April 2018
  Peter Bernard    Non- executive Director    Appointed 1 April 2018
  Tim Breedon    Non- executive Director    Resigned 1 April 2018
  Sir Ian Cheshire    Non- executive Director    Resigned 1 April 2018
  Steven Ewart    Executive Director    Appointed 9 August 2018
  Mary Francis    Non- executive Director    Resigned 1 April 2018
  Crawford Gillies    Non- executive Director    Resigned 1 April 2018
  Reuben Jeffrey III    Non- executive Director    Resigned 1 April 2018
  Helen Keelan    Non- executive Director    Appointed 1 April 2018
  Matthew Lester    Non- executive Director    Resigned 1 April 2018
  John McFarlane    Non- executive Director    Resigned 1 April 2018
  Dambisa Moyo    Non- executive Director    Resigned 1 April 2018
  Tushar Morzaria    Executive Director    Resigned 10 August 2018
  Maria Richter    Non- executive Director    Appointed 1 April 2018
  Diane Schueneman    Non- executive Director    Resigned 1 April 2018
  Jeremy Scott    Non- executive Director    Appointed 1 April 2018
  Tim Throsby    Executive Director    Appointed 1 May 2018
  Alexander Thursby    Non- executive Director    Appointed 1 April 2018
  Michael Turner    Non- executive Director    Resigned 1 April 2018
  Helene Vletter Van Dort    Non- executive Director    Appointed 1 April 2018
  Jes Staley    Executive Director    Resigned 31 January 2019

Directors’ Indemnities

Qualifying third party indemnity provisions (as defined by section 234 of the Companies Act 2006) were in force during the course of the financial year ended 31 December 2018 for the benefit of the then Directors and, at the date of this report, are in force for the benefit of the Directors in relation to certain losses and liabilities which they may incur (or have incurred) in connection with their duties, powers or office. In addition, the Company maintains Directors’ & Officers’ Liability Insurance which gives appropriate cover for legal action brought against its Directors.

Qualifying pension scheme indemnity provisions (as defined by section 235 of the Companies Act 2006) were in force during the course of the financial year ended 31 December 2018 for the benefit of the then Directors, and at the date of this report are in force for the benefit of Directors of Barclays Pension Funds Trustees Limited as Trustee of the Barclays Bank UK Retirement Fund. The Directors of the Trustee are indemnified against liability incurred in connection with the company’s activities as Trustee of the Barclays Bank UK Retirement Fund.

Similarly, qualifying pension scheme indemnities were in force during 2017 for the benefit of Directors of Barclays Executive Schemes Trustees Limited as Trustee of Barclays Bank International Limited Zambia Staff Pension Fund (1965), Barclays Capital International Pension Scheme (No.1), and Barclays PLC Funded Unapproved Retirement Benefits Scheme. The Directors of the Trustee are indemnified against liability incurred in connection with the Company’s activities as Trustee of the schemes above.

Political contributions

The Barclays Bank Group did not give any money for political purposes in the UK, the rest of the EU or outside of the EU, nor did it make any political donations to political parties or other political organisations, or to any independent election candidates, or incur any political expenditure during the year. Details of any political contributions made by the wider Barclays Group can be found in the 2018 Barclays PLC Annual Report.

Environment

Barclays focuses on addressing environmental issues where we believe we have the greatest potential to make a difference. We focus on managing our own carbon footprint and reducing our absolute carbon emissions, developing products and services to help enable the transition to a low-carbon economy, and managing the risks of climate change to our operations, clients, customers and society at large. Disclosure of global greenhouse gas emissions (GHG) is done at a Barclays Group level with information available in the Barclays PLC 2018 Annual Report with fuller disclosure available on our website at home.barclays.com/citizenship.

Research and Development

In the ordinary course of business the Barclays Bank Group develops new products and services in each of its business divisions.

Financial Instruments

The Barclays Bank Groups’ financial risk management objectives and policies, including the policy for hedging each major type of forecasted transaction for which hedge accounting is used, and the exposure to market risk, credit risk and liquidity risk are set out in pages 30 to 37.

Change of control

There are no significant agreements to which the Company is a party that are affected by a change of control of the Company following a takeover bid. There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    11


    

    

 

 

The Auditors

The Barclays PLC Audit Committee reviews the appointment of the external auditors, as well as their relationship with the Barclays Group, including monitoring the Barclays Group’s use of the external auditors for non-audit services and the balance of audit and non-audit fees paid to them. The BBPLC Audit Committee forms part of the governance process for the appointment of external auditors and also monitors the use of the external auditors for non-audit services within BBPLC. More details on this can be found in Note 42 to the accounts.

With effect from the beginning of the 2017 financial year, KPMG was appointed as Barclays’ statutory auditor, replacing PwC following an external audit tender conducted in 2015.

Non-audit services

In order to safeguard the Auditor’s independence and objectivity, Barclays Group has in place a policy setting out the circumstances in which the Auditor may be engaged to provide services other than those covered by the Barclays Group audit. The Barclays Group Policy on the Provision of Services by the Group Statutory Auditor (the Policy) applies to all Barclays’ subsidiaries and other material entities over which Barclays has significant influence. The core principle of the Policy is that non-audit services (other than those legally required to be carried out by the Barclays Group’s Auditor) should only be performed by the Auditor in certain, controlled circumstances. The Policy sets out those types of services that are strictly prohibited and those that are allowable in principle. Any service types that do not fall within either list are considered by the Barclays PLC Audit Committee Chair on a case by case basis, supported by a risk assessment provided by management.

Under the Policy the Barclays PLC Audit Committee has pre-approved all allowable services for which fees are less than £100,000. All requests to engage the Auditor are assessed by independent management before work can commence. Requests for allowable service types in respect of which the fees are expected to meet or exceed the above threshold must be approved by the Chair of the Barclays PLC Audit Committee before work is permitted to begin. Services where the fees are expected to be £250,000 or higher must be approved by the Barclays PLC Audit Committee as a whole. All expenses and disbursements must be included in the fees calculation. More information on this can be found in the Barclays PLC 2018 Annual Report.

The fees payable to KPMG for the year ended 31 December 2018 amounted to £31m, of which £7m (2017: £10m) was payable in respect of non-audit services. A breakdown of the fees payable to the Auditor for statutory audit and non-audit work can be found in Note 42.

Going concern

BBPLC’s business activities, financial position, capital, factors likely to affect its future development and performance and its objectives and policies in managing the financial risks to which it is exposed are discussed in the Strategic Report and Risk Management sections.

The Directors considered it appropriate to prepare the financial statements on a going concern basis.

In preparing each of the Barclays Bank Group and parent Company financial statements, the directors are required to:

assess the Barclays Bank Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

use the going concern basis of accounting unless they either intend to liquidate the Barclays Bank Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

The Barclays Bank Group’s business activities, financial position (including the implications of the UK’s decision to leave the European Union), capital, factors likely to affect its future development and performance and its objectives and policies in managing the financial risks to which it is exposed are discussed in the Strategic Report and Risk Management sections. The Directors have evaluated these risks in the preparation of the financial statements and consider it appropriate to prepare the financial statements on a going concern basis.

Disclosure of Information to the Auditor

Each Director confirms that, so far as he/she is aware, there is no relevant audit information of which the Company’s auditors are unaware and that each of the Directors has taken all the steps that he/she ought to have taken as a Director to make himself /herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given pursuant to section 418 of the Companies Act 2006 and should be interpreted in accordance with and subject to those provisions.

Directors’ responsibilities

The following statement, which should be read in conjunction with the Auditors’ report set out on page 104 to 105, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts.

The Directors are required by the Companies Act 2006 to prepare the Company and the Barclays Bank Group accounts for each financial year and, with regards to Barclays Bank Group accounts, in accordance with Article 4 of the IAS regulation. The Directors have prepared these accounts in accordance with IFRS as adopted by the EU. Under the Companies Act 2006, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Barclays Bank Group of their profit or loss for that period.

The Directors consider that, in preparing the financial statements on pages 106 to 230, the Barclays Bank Group has used appropriate accounting policies, supported by reasonable judgements and estimates, and that all accounting standards which they consider to be applicable have been followed.

Having taken all the matters considered by the Board and brought to the attention of the Board during the year into account, the Directors are satisfied that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Directors are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

 

12    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Governance

Directors’ report

 

 

Directors’ responsibility statement

The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Company and which enable them to ensure that the accounts comply with the Companies Act 2006.

The Directors are also responsible for preparing a Strategic Report and Directors’ Report in accordance with applicable law and regulations.

The Directors are responsible for the maintenance and integrity of the Annual Report and Financial Statements as they appear on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors, whose names are set out on page 4, confirm to the best of their knowledge that:

 

(a)

The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

(b)

The management report on pages 4 to 15 in the Barclays Bank PLC Annual Report, which is incorporated in the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Jason Wright

Company Secretary

20 February 2019

Barclays Bank PLC

Registered in England. Company No. 1026167

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    13


Governance

People

We place a great deal of importance in providing all colleagues with the right support and frameworks to maximise their career goals and opportunities. Barclays Bank PLC colleague themes and initiatives are aligned to Barclays Group values and Barclays Group strategic goals. The following sub-sections are therefore consistent with those detailed in the People Section of the Barclays PLC Annual Report and figures mentioned are for Barclays PLC Group.

Industrial Relations and Workforce

Barclays places great importance on our constructive approach to global employee and industrial relations. During 2018 we continued to work with Unite, our recognised trade union in the UK and with 9 other unions and staff associations directly or through works councils internationally. In the UK, we consulted extensively with Unite on a wide range of restructuring proposals and in respect of changes to compensation structures. Our shared aim where there is restructuring - consistent with our partnership approach to industrial relations - is to minimise compulsory job losses wherever possible. This is achieved through voluntary redundancy and extensive redeployment processes and arrangements. In Europe we held regular consultations with our European Works Council (the Barclays Group European Forum) on a wide range of topics including transnational restructuring proposals, in addition to local consultation with in-country works councils. All colleagues who are displaced as a result of restructuring are offered career transition support. In 2018 c.900 colleagues were supported globally (a take up rate of over 80% of those impacted by restructuring), with over 95% satisfied with the career transition support provided.

Performance Management

Effective Performance management underpins our values-based culture. To support our success, colleagues align their objectives to business and team goals, this is ‘what’ they will deliver. Behavioural expectations are set in the context of our values, this is ‘how’ they will achieve their objectives. We encourage connected performance conversations throughout the year and we continue to run our global recognition programme to recognise the achievements of those who have demonstrated our values in the workplace.

Colleagues are also encouraged to be involved with the Company’s performance by participating in our all-employee share plans, which have been running successfully for over 10 years.

Employee Communications

Barclays regularly updates employees on the financial and economic factors affecting the company’s performance and the delivery of the strategy through Barclays Group CEO and senior leader communications, line manager briefing packs, infographics, videos, interviews and talking points distributed to employees every quarter in accordance with our financial reporting calendar.

We also hold a variety of events for employees so they can hear directly from the Group Executive Committee and employees are kept regularly informed about what is happening in their area and across Barclays through regular local engagement initiatives and communications that allow for discussion and build awareness and understanding. Campaigns and colleague stories throughout the year bring to life how we are living Barclays’ Purpose, ‘Creating opportunities to rise’ and Values: Respect, Integrity, Service, Excellence and Stewardship on a daily basis, providing ongoing evidence of how we are supporting our colleagues, customers and clients and the communities and societies in which we work.

Be Well – Barclays Wellbeing Programme

Barclays global wellbeing programme “Be Well” has focused on two key areas in 2018; a refreshed commitment to make Barclays a “mental health confident” organisation, further development of our supportive culture and the implementation of new global digital infrastructure as the gateway to the programme.

The mental health confident agenda has worked to address both the stigma that can prevent open conversations about mental health – building on Barclays “This is Me” programme – while developing colleagues’ capability to understand, identify and take appropriate action where others need help. The global launch campaign involved a film of senior leaders and Board members sharing their personal reflections on mental health issues and the important role that support from colleagues can play in helping others. The call to action to colleagues was to become mental health confident themselves by completing new online development programmes on “mental health awareness” and “mental health confident”. By year end over 16,000 colleagues had completed “awareness” and c.3,500 had completed the “confident” module.

85% of colleagues already feel that their line manager takes a sincere interest in their wellbeing according to the 2018 Your View survey. To help translate this consistently into practical action, a new guide “Leading our supportive culture” was launched in November for managers, addressing key scenarios and the range of supportive actions that they can take.

The launch in November of a new global Be Well portal and online health check has provided access to all Barclays wellbeing content and support in one place. The portal incorporates an interactive health check tool which targets content in the portal according to colleagues’ identified health risks.

Gender Pay Reporting

Barclays PLC is publishing a Gender Pay Gap report on 21 February 2019. This document will contain Gender Pay Gap information for the Company. The results will also be uploaded to the Government’s Gender Pay Gap reporting portal to meet statutory reporting requirements.

 

 

14    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Governance

People

 

 

Disability & Mental Health

Supporting colleagues with disabilities and mental health conditions to achieve their goals is a key priority. As part of our role as a Disability Confident Leader under the UK Government’s Department of Work and Pensions Disability Confident scheme, Barclays has taken an active role in encouraging more businesses to join the scheme, which now exceeds 7,000. To mark International Day of Persons with Disabilities we launched a paper “Building disability and mental health confidence” which documents our journey to becoming a more accessible and inclusive business.

Our policies for hiring and selection, and in the broad management of our teams, require all employees at Barclays to give full and fair consideration of disabled persons on the basis of their skills and aptitudes. As part of the Disability Confident scheme we actively encourage applications from those with a disability or health condition, and we continually develop different recruitment models to remove the barriers to work for people of all abilities. Our Able to Enable internship is just one example. We encourage everyone who is either working with Barclays, or considering doing so, to open up and share information that will help us to provide the support and adjustments, including appropriate training, that they need to be able to feel valued and fulfilled at work. Barclays’ policies are designed to provide training, career development and promotion opportunities for all, including employees with a disability or health condition.

Reach, the disability and mental health network

Reach, our disability and mental health colleague network, supports colleagues with disabilities, and physical and mental health conditions, to develop and grow their careers within Barclays. It has engaged colleagues through a range of campaigns during 2018 including World Autism Week, Deaf Awareness Week and World Sight Day. They have grown the number of colleague-led mental health peer support groups both within the UK and in the US. In July, they launched a new global interactive version of the Workplace Adjustment Passport to create an even simpler way for colleagues to record their adjustments and make for easier conversations as they move through their careers at Barclays. Through the ‘Your View’ survey 6% of respondents disclosed a disability or mental health condition and the number of colleagues registering as allies through our Reach Purple Champions initiative doubled during 2018 with over 1,600 colleagues registering.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    15


Risk review

Content

The management of risk is a critical underpinning to the execution of Barclays Bank Group’s strategy. The material risks and uncertainties Barclays Bank Group faces across its business and portfolios are key areas of management focus.

 

  Risk management

 

        

Page

 

                   

Overview of Barclays Bank Group’s approach to risk management.

  

  Enterprise Risk Management Framework (ERMF)

 

  Principal risks

 

  Risk appetite for the principal risks

 

  Roles and responsibilities in the management of risk

 

  Barclays Group’s risk culture

  

19

 

19

 

19

 

19

 

21

 

 

    

 

Material existing and emerging risks

 

              

Insight into the level of risk across our business and portfolios, the material existing and emerging risks and uncertainties we face and the key areas of management focus.

  

  Material existing and emerging risks potentially impacting

     more than one principal risk

 

  

23

  
  

  Credit risk

 

  

24

  
  

  Market risk

 

  

25

  
  

  Treasury and capital risk

 

  

25

  
  

  Operational risk

 

  

26

  
  

  Model risk

 

  

27

  
  

  Conduct risk

 

  

27

  
  

  Reputation risk

 

  

28

  
  

  Legal risk and legal, competition and regulatory matters

 

  

28

    

 

Principal Risk management

 

              

Barclays Bank Group’s approach to risk management for each Principal Risk with focus on organisation and structure and roles and responsibilities.

  

  Credit risk management

 

   30   
  

  Market risk management

 

   33   
  

  Treasury and capital risk management

 

  

35

  
  

  Operational risk management

 

  

38

  
  

  Model risk management

 

  

41

  
  

  Conduct risk management

 

  

42

  
  

  Reputation risk management

 

  

43

  
    

  Legal risk management

 

  

44

    

 

Risk performance

 

              

Credit risk: The risk of loss to the firm from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the firm, including the whole and timely payment of principal, interest, collateral and other receivables.

  

  Credit risk overview and summary of performance

 

  

46

  
  

  Maximum exposure and effects of netting, collateral and

     risk transfer

 

  

48

  
  

  Expected credit losses

 

   50   
  

  Movement in gross exposure and impairment allowance for

     loans and advances at amortised cost

 

   51   
  

  Measurement uncertainty and sensitivity analysis

 

  

56

  
  

  Analysis of the concentration of credit risk

 

  

57

  
  

  Approach to the management and representation of

     credit quality

 

  

65

  
  

  Analysis of specific portfolios and asset types

  

69

    

 

 

16    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Content

 

 

 

  Risk performance continued

 

        

Page

 

                   

Market risk: The risk of a loss arising from potential adverse changes in the value of the firm’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations.

  

  Market risk overview and summary of performance

 

  Review of management measures

  

71

 

72

    

Treasury and capital risk – Liquidity:

The risk that the firm is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.

  

  Liquidity risk overview

 

  Liquidity risk stress testing

 

  Contractual maturity of financial assets and liabilities

  

74

 

74

 

74

 

    

Treasury and capital risk – Capital:

The risk that the firm has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This includes the risk from the firm’s pension plans.

  

  Capital risk overview

 

  Foreign exchange risk

 

  Pension risk

  

79

 

80

 

81

    

Treasury and capital risk – Interest rate risk in the banking book The risk that the firm is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities.

  

  Interest rate risk in the banking book overview and summary of

        performance

 

  Net interest income sensitivity

 

  Analysis of equity sensitivity

 

  Volatility of the FVOCI portfolio in the liquidity pool

  

83

 

84

 

85

 

86

    

Operational risk: The risk of loss to the firm from inadequate or failed processes or systems, human factors or due to external events (for example fraud) where the root cause is not due to credit or market risks.

  

  Operational risk overview and summary of performance

 

  Operational risk profile

  

87

 

87

    

Model risk: The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports.

  

  Model risk overview and summary of performance

   89     

Conduct risk: The risk of detriment to customers, clients, market integrity, competition or Barclays from the inappropriate supply of financial services, including instances of wilful or negligent misconduct.

  

  Conduct risk overview and summary of performance 

   90     

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    17


    

    

 

 

  Risk performance continued

 

        

Page

 

                   

Reputation risk: The risk that an action, transaction, investment or event will reduce trust in the firm’s integrity and competence by clients, counterparties, investors, regulators, employees or the public.

  

  Reputation risk overview and summary of performance

   91     

Legal risk: The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements.

  

  Legal risk overview and summary of performance

   92     

 

 Supervision and regulation

 

              

Barclays Bank Group’s operations, including its overseas offices, subsidiaries and associates, are subject to a significant body of rules and regulations.

  

  Supervision of Barclays Bank Group

 

  Global regulatory developments

 

  Financial regulatory framework

  

93

 

95

 

95

    

 

 

18    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Risk management

Barclays’ risk management strategy

Barclays Bank Group’s risk management strategy

Introduction

The activities of Barclays Bank Group entail risk taking, every day, throughout its business. This section introduces these risks, and outlines arrangements for identifying and managing them. These include roles and responsibilities, frameworks, policies and standards, assurance and lessons learned processes. Barclays Bank Group’s approach to fostering a strong risk culture is also described.

Enterprise Risk Management Framework (ERMF)

The ERMF sets the strategic direction for risk management by defining standards, objectives and responsibilities for all areas of Barclays Group. It is approved by the Barclays PLC Board on recommendation of the Barclays Group Chief Risk Officer; it is then adopted by the Barclays Bank Group with modifications where needed. It supports senior management in effective risk management and developing a strong risk culture.

The ERMF sets out:

 

Principal risks faced by Barclays Bank Group

Risk appetite requirements

Roles and responsibilities for risk management

Risk committee structure

Principal risks

Risk appetite for the principal risks

Risk appetite is defined as the level of risk which Barclays Bank Group’s businesses are prepared to accept in the conduct of their activities.

Risk appetite is approved by the Barclays PLC Board and disseminated across legal entities, including Barclays Bank Group. Total Barclays Group appetite and its allocation to Barclays Bank Group are supported by limits to control exposures and activities that have material concentration risk implications.

Roles and responsibilities in the management of risk

The Three Lines of Defence

All colleagues are responsible for understanding and managing risks within the context of their individual roles and responsibilities, as set out below.

First Line of Defence

The First Line of Defence comprises all employees engaged in the revenue generating and client facing areas of Barclays Bank Group and all associated support functions, including Finance, Treasury, Human Resources and the Chief Operating Office (COO) function. Employees in the First Line are responsible for:

 

identifying the risks in their activities and developing appropriate policies, standards and controls

operating within any and all limits which the Risk and Compliance functions establish over the exposures and activities of the first line; and

escalating risk events to senior managers in Risk and Compliance.

Second Line of Defence

The Second Line of Defence comprises employees of Risk and Compliance. The role of the Second Line is to establish the limits, rules and constraints under which First Line activities shall be performed, consistent with the risk appetite of Barclays Bank Group, and to monitor the performance of the First Line against these limits and constraints. Note that the First Line may also set limits for a number of their activities related to Operational Risk. These will remain subject to supervision by the Second Line.

Third Line of Defence

The Third Line of Defence comprises employees of Internal Audit. They provide independent assurance to the Barclays Bank PLC Board and Executive Management over the effectiveness of governance, risk management and control.

The Legal function does not sit in any of the three lines, but supports them all. The Legal function is, however, subject to oversight from Risk and Compliance, with respect to operational and conduct risks

Risk Committees

Barclays Bank Group Product/Risk Type Committees consider risk matters relevant to their business, and escalate as required to the Barclays International Risk Committee, whose Chairman, in turn, escalates to the Barclays Group Risk Committee, Barclays Bank PLC Board Committees and the Barclays Bank PLC Board.

There are two Board-level forums which oversee the application of the ERMF and review and monitor risk across the Barclays Bank Group. These are: the Barclays Bank PLC Board Risk Committee and the Barclays Bank PLC Board Audit Committee. Additionally, the Barclays Bank PLC Board Remuneration Committee oversees pay practices focusing on aligning pay to sustainable performance in line with Group Policies. Finally, the Barclays Bank PLC Board receives regular information on the risk profile of Barclays Bank Group, and has ultimate responsibility for risk appetite and capital plans, within the parameters set by the Barclays PLC Board.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    19


    

    

 

 

LOGO

The Barclays Bank PLC Board

One of the Board’s responsibilities is the approval of risk appetite allocated to Barclays Bank Group. The Board is also responsible for the adoption of the ERMF.

The Barclays Bank PLC Board Risk Committee (BRC)

The BRC monitors Barclays Bank Group’s risk profile against the agreed appetite. Where actual performance differs from expectations, the actions taken by management are reviewed to ascertain that the BRC is comfortable with them. The Barclays Bank PLC CRO regularly presents a report to the BRC summarising developments in the risk environment and performance trends in the key portfolios. The BRC receives regular reports on risk methodologies, the effectiveness of the risk management framework, and Barclays Bank Group’s risk profile, including the material issues affecting each business portfolio and forward risk trends. The committee also commissions in-depth analyses of significant risk topics, which are presented by the Barclays Bank PLC CRO or senior risk managers in the businesses. The Chairman of the BRC provides a verbal update at Barclays Bank PLC Board meetings.

All members are independent non-executive Directors. The Chairman of the BRC also sits on the BAC.

The Barclays Bank PLC Board Audit Committee (BAC)

The BAC receives regular reports on the effectiveness of internal control systems, on material control issues of significance, and on accounting judgements (including impairment). It also receives a half-yearly review of the adequacy of impairment allowances, which it reviews relative to the risk inherent in the portfolios, the business environment and Barclays Bank Group’s policies and methodologies. The Chairman of the BAC also sits on the BRC.

The Barclays Bank PLC Board Remuneration Committee (RemCo)

The RemCo receives a detailed report on risk management performance and risk profile, and proposals on ex-ante and ex-post risk adjustments to variable remuneration. These inputs are considered in the setting of performance incentives.

Role of Barclays Group Risk Management Processes and Forums in Barclays Bank Group

The Barclays Group Risk teams and Board Committees conduct risk management activity, and oversight, in respect of Barclays Bank Group:

 

Barclays Group Board allocates a portion of the overall risk appetite to Barclays Bank Group;

 

Certain Barclays Group Committees and executives review, and take decisions on, matters, events or transactions originating in Barclays Bank Group that are relevant to the risk profile of the Barclays Group

 

Barclays Group-wide risk policies are owned by the Barclays Group Risk Function teams, and adopted by Barclays Bank Group. Entity-specific addenda are agreed with the Barclays Group where local regulations would otherwise preclude adoption, or to clarify or emphasise particular aspects.

 

 

20    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Risk management

Barclays’ risk management strategy

 

 

Barclays’ Group risk culture

Risk culture can be defined as the “norms, attitudes and behaviours related to risk awareness, risk taking and risk management”. This is reflected in how Barclays Bank Group identifies, escalates and manages risk matters.

Our Code of Conduct – the Barclays Way

Globally, all colleagues must attest to the “Barclays Way”, our Code of Conduct, and all frameworks, policies and standards applicable to their roles. The Code of Conduct outlines the Purpose and Values which govern our Barclays Way of working across our business globally. It constitutes a reference point covering the aspects of colleagues’ working relationships, with other Barclays Bank Group employees, customers and clients, governments and regulators, business partners, suppliers, competitors and the broader community.

Embedding of a values-based, conduct culture

Conduct, Culture and Values remain a priority of the Barclays Bank PLC Executive Committee who receive regular, detailed information from the business lines, and clearly communicate their intentions and Barclays Bank Group’s progress to all colleagues. The effectiveness of the Risk and Control environment, for which all colleagues are responsible, depends on the continued embedment of strong values. Colleagues must be willing to meet their risk management responsibilities and escalate issues on a timely basis.

Induction programmes support new colleagues in understanding how risk management culture and practices support how Barclays Bank Group does business and the link to Barclays’ values. The Leadership Curriculum covers the building, sustaining and supporting of a trustworthy organisation and is offered to colleagues globally.

Other risk culture drivers

In addition to values and conduct, we consider the following determinants of risk culture:

 

Management and governance: This means a consistent tone from the top and clear responsibilities to enable risk identification and challenge.

Motivation and incentives: The right behaviours are rewarded and modelled.

Competence and effectiveness: This means that colleagues are enabled to identify, escalate and resolve risk and control matters.

Integrity: Colleagues are willing to meet their risk management responsibilities, and escalate issues on a timely basis.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    21


Risk review

Material existing and emerging risks

Material existing and emerging risks to Barclays Bank Group’s future performance

Material risks are those to which senior management pay particular attention and which could cause the delivery of Barclays Bank Group’s strategy, results of operations, financial condition and/or prospects to differ materially from current expectations.

Emerging risks are those which have largely unknown components, the impact of which could crystallise over a longer time horizon. These could currently be considered immaterial but over time may individually or cumulatively affect Barclays Bank Group’s strategy and cause the same outcomes as material risks. In addition, certain factors beyond Barclays Bank Group’s control, including escalation of terrorism or global conflicts, natural disasters and similar calamities, although not detailed below, could have a similar impact on Barclays Bank Group.

The risks described below are material existing and emerging risks which senior management has identified with respect to Barclays Bank Group.

Material existing and emerging risks potentially impacting more than one principal risk

i) Business conditions, general economy and geopolitical issues

Barclays Bank Group’s business mix spreads across multiple geographies and client types. The breadth of these operations means that deterioration in the economic environment, or an increase in political instability in countries where Barclays Bank Group is active, or in any systemically important economy, could adversely affect Barclays Bank Group’s operating performance, financial condition and prospects.

Although economic activity continued to strengthen globally in 2018, a change in global economic conditions and the reversal of the improving trend may result in lower client activity in Barclays Bank Group, including lower demand for borrowing from creditworthy customers, and/or a reduction in the value of related collateral and/or an increase of Barclays Bank Group’s default rates, delinquencies, write-offs, and impairment charges, which in turn could adversely affect Barclays Bank Group’s performance and prospects. Deteriorating economic conditions could also impact the ability of Barclays Bank Group to raise funding from external investors. In addition, a shift in the forward looking consensus view of economic conditions may materially impact the models used to calculate impairment under IFRS 9, where an increase in impairment could adversely affect Barclays Bank Group’s profitability.

In several countries, reversals of capital inflows, as well as fiscal austerity, have already caused deterioration in political stability. This could be exacerbated by a renewed rise in asset price volatility or sustained pressure on government finances. In addition, geopolitical tensions in some areas of the world are at risk of further deterioration, thus potentially increasing market uncertainties and causing adverse global economic and market conditions, which in turn could adversely affect Barclays Bank Group’s profitability in certain geographical locations.

In the UK, the vote in favour of leaving the European Union (EU), [see ii) Process of UK withdrawal from the European Union below], has given rise to political uncertainty with potential consequences for investment and market confidence. The initial impact was a depreciation of Sterling resulting in higher costs for companies exposed to imports and a more favourable environment for exporters. Rising domestic costs resulting from higher import prices may impact household incomes and the affordability of consumer loans and mortgages. In turn this may affect businesses dependent on consumers for revenue, exacerbated by current pressures on businesses dependent on discretionary purchases, potentially resulting in increased impairment in Barclays Bank Group’s portfolios. There has also been a reduction in activity in both commercial and residential real estate markets which has the potential to impact the value of real estate assets and adversely affect mortgage assets. Furthermore, continued uncertainty in the withdrawal process could have a detrimental effect in the economic environment in continental Europe, which may negatively impact Barclays Bank Group’s business in specific European countries.

In the US, where the economy outperformed other key markets in 2018, there is the possibility of significant continued changes in policy in sectors including trade, healthcare and commodities which may have an impact on associated Barclays Bank Group portfolios. A significant proportion of Barclays Bank Group’s portfolio is located in the US, including a major credit card portfolio and a range of corporate and investment banking exposures. Stress in the US economy, weakening GDP and the associated exchange rate fluctuations, heightened trade tensions, an unexpected rise in unemployment and/or an increase in interest rates could lead to increased levels of impairment, resulting in a negative impact on Barclays Bank Group’s profitability.

As anticipated, most major central banks have started tightening their monetary policies in 2018 and there remains a possibility that this will continue. The risk of large capital flows spawned by divergent or differently timed policies remains, and this will continue to provide financial market turbulence, in particular in emerging market economies. This may negatively impact Barclays Bank Group’s business in the affected regions, under both profiles of credit and market risk.

Sentiment towards emerging markets as a whole continues to be driven in large part by developments in China, where there is some concern around the ability of authorities to manage growth while transitioning from manufacturing towards services. Although the Chinese government’s efforts to stably increase the weight of domestic demand have had some success, the pace of credit growth remains a concern, given the high level of leverage and despite regulatory action. A stronger than expected slowdown could result if authorities fail to appropriately manage the end of the investment and credit-led boom. Deterioration in emerging markets could affect Barclays Bank Group if it results in higher impairment charges for Barclays Bank Group via sovereign or counterparty defaults.

More broadly, a deterioration of conditions in the key markets where Barclays Bank Group operates could affect performance in a number of ways including, for example: (i) deteriorating business, consumer or investor confidence indirectly having a material adverse impact on GDP growth in significant markets and therefore on Barclays Bank Group’s performance; (ii) mark to market losses in trading portfolios resulting from changes in factors such as credit ratings, share prices and solvency of counterparties; (iii) reduced ability to obtain capital from other financial institutions for Barclays Bank Group’s operations; and (iv) lower levels of fixed asset investment and productivity growth overall.

ii) Process of UK withdrawal from the European Union

The uncertainty around Brexit spanned the whole of 2018, and intensified in the second half of the year. The full impact of the withdrawal may only be realised in years to come, as the economy adjusts to the new regime, but Barclays Bank Group continues to monitor the most relevant risks, including those that may have a more immediate impact, for its business:

 

 

22    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Material existing and emerging risks

 

Market volatility, including in currencies and interest rates, might increase which could have an impact on the value of Barclays Bank Group’s trading book positions.

 

Potential UK financial institutions credit spread widening could lead to reduced investor appetite for Barclays Bank Group’s debt securities; this could negatively impact the cost of, and/or access to, funding. There is potential for continued market and interest rate volatility. This volatility could affect underlying interest rate risk value of the assets in the banking book, and securities held by Barclays Bank Group for liquidity purposes.

 

A credit rating agency downgrade applied directly to Barclays Bank Group, or indirectly as a result of a credit rating agency downgrade to the UK Government, could significantly increase Barclays Bank Group’s borrowing costs, credit spreads and materially adversely affect Barclays Bank Group’s interest margins and liquidity position.

 

Changes in the long-term outlook for UK interest rates may adversely affect pension liabilities and the market value of investments funding those liabilities.

 

Increased risk of a UK recession with lower growth, higher unemployment and falling UK house prices. This would likely negatively impact a number of Barclays Bank Group’s portfolios.

 

The implementation of trade and customs barriers between the UK and EU could lead to delays and increased costs in the passage of goods for corporate banking customers. This could negatively impact the levels of customer defaults and business volumes which may result in an increase in Barclays Bank Group’s impairment charges and a reduction in revenues.

 

Changes to current EU ‘Passporting’ rights may require further adjustment to the current model for Barclays Bank Group’s cross-border banking operation which could increase operational complexity and/or costs.

 

The ability to attract, or prevent the departure of, qualified and skilled employees may be impacted by the UK’s and the EU’s future approach to the EU freedom of movement and immigration from the EU countries and this may impact Barclays’ access to the EU talent pool.

 

The legal framework within which Barclays Bank Group operates could change and become more uncertain if the UK takes steps to replace or repeal certain laws currently in force, which are based on EU legislation and regulation (including EU regulation of the banking sector) following its withdrawal from the EU. Certainty around the ability to perform existing contracts, enforceability of certain legal obligations and uncertainty around the jurisdiction of the UK courts may be affected until the impacts of the loss of the current legal and regulatory arrangements between the UK and EU and the enforceability of UK judgements across the EU are fully known.

 

Should the UK lose automatic qualification to be part of Single Euro Payments Area there could be a resultant impact on the efficiency of, and access to, European payment systems. In addition, loss of automatic qualification to the European Economic Area (EEA) or access to Financial Markets Infrastructure including exchanges, central counterparties and payments services could impact service provision for clients, likely resulting in reduced market share and revenue and increased operating costs for Barclays Bank Group.

 

There are certain execution risks relating to the transfer of Barclays Bank Group’s European businesses to Barclays Bank Ireland. Technology change could result in outages or operational errors leading to delays in the transfer of assets and liabilities to Barclays Bank Ireland, and delayed delivery could lead to European clients losing access to products and service and increased reputational risk.

iii) Interest rate rises adversely impacting credit conditions

To the extent that central banks increase interest rates particularly in Barclays Bank Group’s main markets, in the UK and the US, there could be an impact on consumer debt affordability and corporate profitability.

While interest rate rises could positively impact Barclays Bank Group’s profitability, as retail and corporate business income may increase due to margin de-compression, future interest rate increases, if larger or more frequent than expectations, could cause stress in the lending portfolio and underwriting activity of Barclays Bank Group. Higher credit losses driving an increased impairment allowance would most notably impact retail unsecured portfolios and wholesale non-investment grade lending.

Changes in interest rates could also have an adverse impact on the value of high quality liquid assets which are part of Barclays Bank Group Treasury function’s investment activity. Consequently, this could create more volatility than expected through Barclays Bank Group’s FVOCI reserves.

iv) Regulatory change agenda and impact on business model

Barclays Bank Group remains subject to ongoing significant levels of regulatory change and scrutiny in many of the countries in which it operates (including, in particular, the UK and the US). As a result, regulatory risk will remain a focus for senior management and consume significant levels of business resources. Furthermore, a more intensive regulatory approach and enhanced requirements together with the uncertainty (particularly in light of the UK’s withdrawal from the EU) and potential lack of international regulatory co-ordination as enhanced supervisory standards are developed and implemented may adversely affect Barclays Bank Group’s business, capital and risk management strategies and/or may result in Barclays Bank Group deciding to modify its legal entity, capital and funding structures and business mix, or to exit certain business activities altogether or not to expand in areas despite otherwise attractive potential.

Barclays Bank UK Group was established on 1 April 2018 as the ring-fenced entity under Barclays Group. The transfer of the assets and liabilities of the Barclays UK division from Barclays Bank Group means that the Barclays Bank Group is less diversified than Barclays as a whole. Barclays Bank Group is not the parent of Barclays Bank UK Group and thus does not have recourse to the assets of Barclays Bank UK Group. Relative to Barclays Group, Barclays Bank Group is, amongst other things:

 

more focused on businesses outside the UK, particularly in the US, and thus more exposed to the US economy and more affected by movements in the US Dollar (and other non-Sterling currencies) relative to Sterling, with a relatively larger portion of its business exposed to US regulation.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    23


    

    

 

more focused on wholesale businesses, such as corporate and investment banking and capital markets, which expose Barclays Bank Group to a broader range of market conditions, and to counterparty and operational risks. As such, the financial performance of Barclays Bank Group may be subject to greater fluctuations relative to that of Barclays as a whole or that of Barclays Bank UK Group.

 

more dependent on wholesale funding sources, as the UK retail deposit base has been transferred to the Barclays Bank UK Group. The UK retail mortgage assets have also been transferred to Barclays Bank UK Group, which reduces Barclays Bank Group’s access to funding sources reliant on residential mortgage collateral. Barclays Bank Group may therefore experience more difficult financing conditions and/or higher costs of funding including in situations of stress. As a result of the implementation of ring-fencing, different Barclays Group entities, such as Barclays Bank Group, may be assessed differently by credit rating agencies, which may result in different, and possibly more negative, assessments of Barclays Bank Group’s credit and thus in lower credit ratings than the credit ratings of Barclays Group, which in turn could adversely affect the sources and costs of funding for Barclays Bank Group.

 

potentially subject to different regulatory obligations, including different liquidity requirements and capital buffers.

There are several other significant pieces of legislation and areas of focus which will require significant management attention, cost and resource, including:

 

Changes in prudential requirements (including the risk reduction measures package recently adopted in the EU to amend the Capital Requirements Directive (CRD IV) and the Bank Recovery and Resolution Directive (BRRD)) may impact minimum requirements for own funds and eligible liabilities (MREL) (including requirements for internal MREL), leverage, liquidity or funding requirements, applicable buffers and/or add-ons to such minimum requirements and risk weighted assets calculation methodologies all as may be set by international, EU or national authorities. Such or similar changes to prudential requirements or additional supervisory and prudential expectations, either individually or in aggregate, may result in, among other things, a need for further management actions to meet the changed requirements, such as: increasing capital, MREL or liquidity resources, reducing leverage and risk weighted assets; restricting distributions on capital instruments; modifying the terms of outstanding capital instruments; modifying legal entity structure (including with regard to issuance and deployment of capital, MREL and funding); changing Barclays Bank Group’s business mix or exiting other businesses; and/or undertaking other actions to strengthen Barclays Bank Group’s position. (See Treasury and capital risk on pages 73 to 86 and Supervision and regulation on pages 93 to 102 for more information).

 

The derivatives market has been the subject of particular focus for regulators in recent years across the G20 countries and beyond, with regulations introduced which require the reporting and clearing of standardised over the counter (OTC) derivatives and the mandatory margining of non-cleared OTC derivatives. Other regulations applicable to swap dealers, including those promulgated by the US Commodity Futures Trading Commission, have imposed significant costs on Barclays Bank Group’s derivatives business. The increased regulation of swaps and security-based swaps may also result in other increases in costs for market participants, as well as reduced liquidity in the markets for such instruments, which could cause further increases in costs and volatility. These and any future requirements, including the US SEC’s regulations relating to security-based swaps and the possibility of overlapping and/or contradictory requirements imposed on derivative transactions by regulators in different jurisdictions, are expected to continue to impact such business in the same manner.

More broadly, compliance with the evolving regulatory framework entails significant costs for market participants and is having a significant impact on certain markets in which Barclays Bank Group operates. The recast Markets in Financial Instruments Directive in Europe (MiFID II), which came into force in January 2018, has fundamentally changed the European regulatory framework entailing significant operational changes for market participants in a wide range of financial instruments as well as changes in market structures and practices. In addition, the EU Benchmarks Regulation, which also came into force in January 2018, regulates the use of benchmarks in the EU. In particular, after 1 January 2020 certain Barclays Bank Group entities will not be permitted to use benchmarks unless the relevant administrator is authorised, registered or qualifies under a third party regime. This may necessitate adapting processes and systems to transition to new alternative benchmarks, which would be a very time consuming and costly process. Separately, the transition to risk-free rates as part of a wider benchmark reform is also expected to be impactful to Barclays Bank Group in respect of the timing of the development of a robust risk free rate market, an unfavourable market reaction and/or inconsistencies in the adoption of products using the new risk free rates, and also in respect of the costs and uncertainties involved in managing and/or changing historical products to reference risk free rates as a result of the proposed discontinuation of certain existing benchmarks.

 

Barclays Bank Group and certain of its members are subject to supervisory stress testing exercises in a number of jurisdictions. These exercises currently include the programmes of the BoE, the EBA, the FDIC and the FRB. These exercises are designed to assess the resilience of banks to adverse economic or financial developments and enforce robust, forward looking capital and liquidity management processes that account for the risks associated with their business profile. Assessment by regulators is on both a quantitative and qualitative basis, the latter focusing on Barclays Bank Group’s or certain of its members’ business model, data provision, stress testing capability and internal management processes and controls. The stress testing requirements to which Barclays Bank Group and its members are subject are becoming increasingly stringent. Failure to meet requirements of regulatory stress tests, or the failure by regulators to approve the stress test results and capital plans of Barclays Bank Group, could result in Barclays Bank Group being required to enhance its capital position, limit capital distributions or position additional capital in specific subsidiaries. For more information on stress testing, please see Supervision and regulation on pages 96 to 97.

 

The introduction and implementation of Payments Service Directive 2 (PSD2) with delivery across 2019 provides third parties and banks with opportunities to change and enhance the relationship between a customer and their bank. It does this by providing customers with the ability to share their transactional data with authorised third party service providers either for aggregation or payment services. It is anticipated that payment services will be offered by third parties to Barclay Bank Group’s customers. PSD2 will also introduce new requirements to the authentication process for a number of actions customers take, including ecommerce transactions. A failure to comply with PSD2 could expose Barclays Bank Group to regulatory sanction. Further, the regime could mean that actions or omissions by third party service providers could expose Barclays Bank Group to potential financial loss from third party fraud, misuse of customer data, litigation and reputational detriment, amongst other things. The changes to authentication may change the fraud environment across the industry as providers implement different approaches to comply.

Material existing and emerging risks impacting individual principal risks

i) Credit risk

a) Impairment

The introduction of the impairment requirements of IFRS 9 Financial Instruments, implemented on 1 January 2018, results in impairment loss allowances that are recognised earlier, on a more forward looking basis and on a broader scope of financial instruments than has been the case under IAS 39 and has had, and may continue to have, a material impact on Barclays Bank Group’s financial condition.

Measurement involves increased complex judgement and impairment charges will tend to be more volatile, particularly under stressed conditions. Unsecured products with longer expected lives, such as revolving credit cards, are the most impacted. Taking into account the transitional regime, the capital treatment on the increased reserves has the potential to adversely impact regulatory capital ratios.

In addition, the move from incurred to expected credit losses has the potential to impact Barclays Bank Group’s performance under stressed

 

 

24    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Material existing and emerging risks

 

economic conditions or regulatory stress tests. For more information, please refer to Note 1 on pages 113 to 117.

b) Specific sectors and concentrations

Barclays Bank Group is subject to risks arising from changes in credit quality and recovery rate of loans and advances due from borrowers and counterparties in a specific portfolio. Any deterioration in credit quality could lead to lower recoverability and higher impairment in a specific sector. The following are areas of uncertainties to Barclays Bank Group’s portfolio which could have a material impact on performance:

 

UK retailers. Softening demand, rising costs and a structural shift to online is fuelling pressure on the UK High Street. Whilst we have not seen any material impact, as the UK retailer market repositions itself the trend represents a potential risk in our UK corporate portfolio.

 

Consumer affordability has remained a key area of focus for regulators, particularly in unsecured lending, driven by the growth in levels of borrowing over the last two years. Macroeconomic factors, such as rising unemployment, that impact a customer’s ability to service unsecured debt payments could lead to increased arrears in unsecured products.

 

UK real estate market. UK property represents a significant portion of the overall Barclays Bank Group corporate credit exposure. In 2018, property price growth across the UK continued, however, this growth has slowed in London and the South East where the Barclays Bank Group exposure has high concentration. Barclays Bank Group is at risk of increased impairment from a material fall in property prices due to the depreciation in value of the underlying loan security.

 

Leverage finance underwriting. Barclays Bank Group takes on sub-investment grade underwriting exposure, including single name risk, particularly in the US and Europe. Barclays Bank Group is exposed to credit events and market volatility during the underwriting period. Any adverse events during this period may potentially result in loss for Barclays Bank Group or an increased capital requirement should there be a need to hold the exposure for an extended period.

 

Italian portfolio. Barclays Bank Group is exposed to a decline in the Italian economic environment through a mortgage portfolio in run-off and positions to wholesale customers. The Italian economy tipped into an official recession at the end of 2018 and should the economy deteriorate further, there could be a material adverse effect on Barclays Bank Group’s results including, but not limited to, increased credit losses and higher impairment charges.

Barclays Bank Group also has large individual exposures to single name counterparties, both in its lending activities and in its financial services and trading activities, including transactions in derivatives and transactions with brokers, central clearing houses, dealers, other banks, mutual and hedge funds and other institutional clients. The default of such counterparties could have a significant impact on the carrying value of these assets. In addition, where such counterparty risk has been mitigated by taking collateral, credit risk may remain high if the collateral held cannot be realised, or has to be liquidated at prices which are insufficient to recover the full amount of the loan or derivative exposure. Any such defaults could have a material adverse effect on Barclays Bank Group’s results due to, for example, increased credit losses and higher impairment charges.

c) Environmental risk

Barclays Bank Group is exposed to credit risks arising from energy and climate change. Indirect risks may be incurred as a result of environmental issues impacting the credit worthiness of the borrower resulting in higher impairment.

ii) Market risk

Market volatility

An uncertain outlook for the direction of monetary policy, the US-China trade conflict, slowing global growth and political concerns in the US and Europe (including Brexit) are some of the factors that could heighten market risks for Barclays Bank Group’s portfolios.

In addition, Barclays Bank Group’s trading business is generally exposed to a prolonged period of elevated asset price volatility, particularly if it negatively affects the depth of marketplace liquidity. Such a scenario could impact Barclays Bank Group’s ability to execute client trades and may also result in lower client flow-driven income and/or market-based losses on its existing portfolio of market risks. These can include having to absorb higher hedging costs from rebalancing risks that need to be managed dynamically as market levels and their associated volatilities change.

iii) Treasury and capital risk

Barclays Bank Group may not be able to achieve its business plans due to: a) inability to maintain appropriate capital ratios; b) inability to meet its obligations as they fall due; c) rating agency downgrades; d) adverse changes in foreign exchange rates on capital ratios; e) adverse movements in the pension fund; f) non-traded market risk/interest rate risk in the banking book.

a) Inability to maintain prudential ratios and other regulatory requirements

This could lead to Barclays Bank Group’s inability to support business activity; a failure to meet regulatory capital requirements including any additional capital add-ons or the requirements set for regulatory stress tests; increased cost of funding due to deterioration in investor appetite or credit ratings; restrictions on distributions including the ability to meet dividend targets; and/or the need to take additional measures to strengthen Barclays Bank Group’s capital or leverage position.

b) Inability to manage liquidity and funding risk effectively

This may result in Barclays Bank Group either not having sufficient financial resources to meet its payment obligations as they fall due or, although solvent, only being able to meet these obligations at excessive cost. This could cause Barclays Bank Group to fail to meet regulatory liquidity standards or be unable to support day-to-day banking activities.

The stability of Barclays Bank Group’s current funding profile, in particular that part which is based on accounts and deposits payable on demand or at short notice, could be affected by Barclays Bank Group failing to preserve the current level of customer and investor confidence. Barclays Bank Group also regularly accesses the capital markets to provide short-term and long-term funding to support its operations. Several factors, including adverse macroeconomic conditions, adverse outcomes in legal, regulatory or conduct matters and loss of confidence by investors, counterparties and/or customers in Barclays Bank Group, can affect the ability of Barclays Bank Group to access the capital markets and/or the cost and other terms upon which Barclays Bank Group is able to obtain market funding.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    25


    

    

 

c) Credit rating changes and the impact on funding costs

Any potential or actual credit rating agency downgrades could significantly increase Barclays Bank Group’s borrowing costs, credit spreads and materially adversely affect Barclays Bank Group’s interest margins and liquidity position. Consequently, this may result in reduced profitability for Barclays Bank Group.

d) Adverse changes in FX rates impacting capital ratios

Barclays Bank Group has capital resources, risk weighted assets and leverage exposures denominated in foreign currencies. Changes in foreign currency exchange rates may adversely impact the Sterling equivalent value of these items. As a result, Barclays Bank Group’s regulatory capital ratios are sensitive to foreign currency movements. Failure to appropriately manage Barclays Bank Group’s balance sheet to take account of foreign currency movements could result in an adverse impact on regulatory capital and leverage ratios.

e) Adverse movements in the pension fund

Adverse movements in pension assets and liabilities for defined benefit pension schemes could result in deficits on a funding and/or accounting basis. This could lead to Barclays Bank Group making substantial additional contributions to its pension plans and/or a deterioration in its capital position. Under IAS 19 the liabilities discount rate is derived from the yields of high quality corporate bonds.

Therefore, the valuation of Barclays Bank Group’s defined benefits schemes would be adversely affected by a prolonged fall in the discount rate due to a persistent low rate and/or credit spread environment. Inflation is another significant risk driver to the pension fund as the liabilities are adversely impacted by an increase in long-term inflation expectations.

f) Non-traded market risk/interest rate risk in the banking book

A shortfall in the liquidity pool investment return could increase Barclays Bank Group’s cost of funds and impact the capital ratios. Barclays Bank Group’s structural hedge programmes for interest rate risk in the banking book rely on behavioural assumptions, as a result, the success of the hedging strategy is not guaranteed. A potential mismatch in the balance or duration of the hedge assumptions could lead to earnings deterioration.

iv) Operational risk

a) Cyber threat

The frequency of cyber-attacks continues to grow and is a global threat which is inherent across all industries, including the financial sector and is a key area of focus for Barclays Bank Group. The financial sector remains a primary target for cyber criminals. There is an increasing level of sophistication in both criminal and nation state hacking for the purpose of stealing money, stealing, destroying or manipulating data, including customer data, and/or disrupting operations, where multiple threats exist including threats arising from malicious emails, distributed denial of service (DDoS) attacks, payment system compromises, supply chain and vulnerability exploitation. Other events have a compounding impact on services and customers, e.g. data breaches in social networking sites, retail companies and payments networks.

Failure to adequately manage this threat could result in increased fraud losses, inability to perform critical economic functions, customer detriment, potential regulatory censure or penalties, legal liability, reduction in shareholder value and reputational damage.

b) Fraud

The level and nature of fraud threats continues to evolve, particularly with the increasing use of digital products and the greater functionality available online. Criminals continue to adapt their techniques and are increasingly focused on targeting customers and clients through ever more sophisticated methods of social engineering. External data breaches also provide criminals with the opportunity to exploit the growing levels of compromised data. These threats could lead to customer detriment, loss of business, regulatory censure, missed business opportunity and reputational damage.

c) Operational resilience

The loss of or disruption to Barclays Bank Group’s business processing is a material inherent risk theme within Barclays Bank Group and across the financial services industry, whether arising through impacts on technology systems, real estate services, personnel availability or the support of major suppliers.

Failure to build resilience into business processes or into the services of technology, real estate or suppliers on which Barclays Bank Group business processes depend may result in significant customer detriment, costs to reimburse losses incurred by our customers, potential regulatory censure or penalties, and reputational damage.

d) Supplier exposure

Barclays Bank Group depends on suppliers, including Barclays Services Limited, for the provision of many of its services and the development of technology. Even though Barclays Bank Group depends on suppliers, it continues to be accountable for risk arising from the actions of such suppliers.

Failure to monitor and control Barclays Bank Group’s suppliers could potentially lead to client information, or critical infrastructures and services, not being adequately protected or available when required. The dependency on suppliers and sub-contracting of outsourced services introduces concentration risk where the failure of specific suppliers could have an impact on our ability to continue to provide services that are material to Barclays Bank Group.

Failure to adequately manage outsourcing risk could result in increased losses, inability to perform critical economic functions, customer detriment, potential regulatory censure, legal liability and reputational damage.

e) Processing error

As a large, complex bank, Barclays Bank Group faces the risk of material errors in operational processes, including payments and client transactions.

Material operational or payment errors could disadvantage Barclays Bank Group’s customers, clients or counterparties and could result in regulatory censure, legal liability, reputational damage and financial loss for Barclays Bank Group.

f) New and emergent technology

Technological advancements present opportunities to develop new and innovative ways of doing business across Barclays Bank Group, with new

 

 

26    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Material existing and emerging risks

 

solutions being developed both in-house and in association with third party companies. Introducing new forms of technology, however, also has the potential to increase inherent risk.

Failure to evaluate, actively manage and closely monitor risk exposure during all phases of business development could lead to customer detriment, loss of business, regulatory censure, missed business opportunity and reputational damage.

g) Ability to hire and retain appropriately qualified employees

As a regulated financial institution, Barclays Bank Group requires diversified and specialist skilled colleagues. Barclays Bank Group’s ability to attract, develop and retain a diverse mix of talent is key to the delivery of its core business activity and strategy. This is impacted by a range of external and internal factors, such as the UK’s decision to leave the EU and the enhanced individual accountability applicable to the banking industry.

Failure to attract or prevent the departure of appropriately qualified and skilled employees could negatively impact our financial performance, control environment and level of employee engagement. Additionally, this may result in disruption to service which could in turn lead to disenfranchising certain customer groups, customer detriment and reputational damage.

h) Tax risk

Barclays Bank Group is required to comply with the domestic and international tax laws and practice of all countries in which it has business operations. The Tax Cuts and Jobs Act has introduced substantial changes to the US tax system, including the introduction of a new tax, the Base Erosion Anti-Abuse Tax. These changes have increased Barclays Bank Group’s tax compliance obligations and require a number of system and process changes which introduce additional operational risk. In addition, increasing customer tax reporting requirements around the world and the digitisation of the administration of tax has potential to increase Barclays Bank Group’s tax compliance obligations further. In light of the above, there is a risk that Barclays Bank Group could suffer losses due to additional tax charges, other financial costs or reputational damage as a result of failing to comply with such laws and practice, or by failing to manage its tax affairs in an appropriate manner, with much of this risk attributable to the international structure of Barclays Bank Group.

i) Critical accounting estimates and judgements

The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying relevant accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements include credit impairment charges for amortised cost assets, taxes, fair value of financial instruments, pensions and post-retirement benefits, and provisions including conduct and legal, competition and regulatory matters. There is a risk that if the judgement exercised, or the estimates or assumptions used, subsequently turn out to be incorrect, this could result in significant loss to Barclays Bank Group, beyond what was anticipated or provided for.

The further development of standards and interpretations under IFRS could also significantly impact the financial results, condition and prospects of Barclays Bank Group.

j) Data management and information protection

Barclays Bank Group holds and processes large volumes of data, including personally identifiable information, intellectual property, and financial data. Failure to accurately collect and maintain this data, protect it from breaches of confidentiality and interference with its availability exposes Barclays Bank Group to the risk of loss or unavailability of data (including customer data covered under vi), c) Data protection and privacy, below) or data integrity issues. This could result in regulatory censure, legal liability and reputational damage, including the risk of substantial fines under the General Data Protection Regulation (GDPR), which strengthens the data protection rights for customers and increases the accountability of Barclays Bank Group in its management of that data.

k) Unauthorised or Rogue Trading

Unauthorised trading, such as a large unhedged position, which arises through a failure of preventative controls or deliberate actions of the trader, may result in large financial losses for Barclays Bank Group, loss of business, damage to investor confidence and reputational damage.

l) Algorithmic Trading

In some areas of the investment banking business, trading algorithms are used to price and risk manage client and principal transactions. An algorithmic error could result in increased market exposure and subsequent financial losses for Barclays Bank Group and potential loss of business, damage to investor confidence and reputational damage.

v) Model risk

Enhanced model risk management requirements

Barclays Bank Group relies on models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures (including the calculation of impairment), conducting stress testing, assessing capital adequacy, supporting new business acceptance and risk and reward evaluation, managing client assets, and meeting reporting requirements.

Models are, by their nature, imperfect and incomplete representations of reality because they rely on assumptions and inputs, and so they may be subject to errors affecting the accuracy of their outputs. For instance, the quality of the data used in models across Barclays Bank Group has a material impact on the accuracy and completeness of our risk and financial metrics.

Models may also be misused. Model errors or misuse may result in Barclays Bank Group making inappropriate business decisions and being subject to financial loss, regulatory risk, reputational risk and/or inadequate capital reporting.

vi) Conduct risk

There is the risk of detriment to customers, clients, market integrity, effective competition or Barclays Bank Group from the inappropriate supply of financial services, including instances of wilful or negligent misconduct. This risk could manifest itself in a variety of ways:

a) Product governance and life cycle

Ineffective product governance, including design, approval and review of products, inappropriate controls over internal and third party sales

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    27


    

    

 

channels and post sales services, such as complaints handling, collections and recoveries, could lead to poor customer outcomes, as well as regulatory sanctions, financial loss and reputational damage.

b) Financial crime

Barclays Bank Group may be adversely affected if it fails to effectively mitigate the risk that third parties or its employees facilitate, or that its products and services are used to facilitate financial crime (money laundering, terrorist financing and proliferation financing, breaches of economic and financial sanctions, bribery and corruption, and the facilitation of tax evasion). UK and US regulations concerning financial institutions continue to focus on combating financial crime. Failure to comply may lead to enforcement action by Barclays Bank Group’s regulators together with severe penalties, affecting Barclays Bank Group’s reputation and financial results.

c) Data protection and privacy

Proper handling of personal data is critical to sustaining long-term relationships with our customers and clients and to meeting privacy laws and obligations. Failure to protect personal data can lead to potential detriment to our customers and clients, reputational damage, regulatory sanctions and financial loss, which under the GDPR may be substantial (see iii (j) Data management and information protection, above).

d) Regulatory focus on culture and accountability

Regulators around the world continue to emphasise the importance of culture and personal accountability and the adoption and enforcement of adequate internal reporting and whistleblowing procedures in helping to promote appropriate conduct and drive positive outcomes for customers, colleagues, clients and markets. Failure to meet the requirements and expectations of the UK Senior Managers Regime, Certification Regime and Conduct Rules may lead to regulatory sanctions, both for the individuals and Barclays Bank Group.

vii) Reputation risk

Barclays’ association with sensitive sectors and its impact on reputation

A risk arising in one business area can have an adverse effect upon Barclays Bank Group’s overall reputation; any one transaction, investment or event that, in the perception of key stakeholders reduces their trust in Barclays Bank Group’s integrity and competence.

Barclays Bank Group’s association with sensitive topics and sectors is an area of concern for stakeholders, including:

 

Disclosure of climate risks and opportunities, including the activities of certain sections of the client base, which has become the subject of increased scrutiny from regulators, NGOs and other stakeholders.

 

The risks of association with human rights violations through the perceived indirect involvement in human rights abuses committed by clients and customers.

 

The manufacture and export of military and riot control goods and services by clients and customers.

These associations have the potential to give rise to reputation risk for Barclays Bank Group and may result in loss of business, regulatory censure and missed business opportunity.

In addition to the above, Reputation risk has the potential to arise from operational issues or conduct matters which cause detriment to customers, clients, market integrity, effective competition or Barclays Bank Group (see iv a) Cyber threat, iv j) Data management and information protection, and vi) Conduct risk, above).

viii) Legal risk and legal, competition and regulatory matters

Legal disputes, regulatory investigations, fines and other sanctions relating to conduct of business and breaches of legislation and/or regulations may negatively affect Barclays Bank Group’s results, reputation and ability to conduct its business.

Barclays Bank Group conducts diverse activities in a highly regulated global market and therefore is exposed to the risk of fines and other sanctions. Authorities have continued to investigate past practices, pursued alleged breaches and imposed heavy penalties on financial services firms. A breach of applicable legislation and/or regulations could result in Barclays Bank Group or its staff being subject to criminal prosecution, regulatory censure, fines and other sanctions in the jurisdictions in which it operates. Where clients, customers or other third parties are harmed by Barclays Bank Group’s conduct, this may also give rise to legal proceedings, including class actions. Other legal disputes may also arise between Barclays Bank Group and third parties relating to matters such as breaches, enforcement of legal rights or obligations arising under contracts, statutes or common law. Adverse findings in any such matters may result in Barclays Bank Group being liable to third parties, or may result in Barclays Bank Group’s rights not being enforced as intended.

Details of legal, competition and regulatory matters to which Barclays Bank Group is currently exposed are set out in Note 28. In addition to matters specifically described in Note 28, Barclays Bank Group is engaged in various other legal proceedings which arise in the ordinary course of business. Barclays Bank Group is also subject to requests for information, investigations and other reviews by regulators, governmental and other public bodies in connection with business activities in which Barclays Bank Group is, or has been, engaged.

The outcome of legal, competition and regulatory matters, both those to which Barclays Bank Group is currently exposed and any others which may arise in the future, is difficult to predict. In connection with such matters, Barclays Bank Group may incur significant expense, regardless of the ultimate outcome, and any such matters could expose Barclays Bank Group to any of the following outcomes: substantial monetary damages, settlements and/or fines; remediation of affected customers and clients; other penalties and injunctive relief; additional litigation; criminal prosecution; the loss of any existing agreed protection from prosecution; regulatory restrictions on Barclays Bank Group’s business operations including the withdrawal of authorisations; increased regulatory compliance requirements; suspension of operations; public reprimands; loss of significant assets or business; a negative effect on Barclays Bank Group’s reputation; loss of confidence by investors, counterparties, clients and/or customers; risk of credit rating agency downgrades; potential negative impact on the availability and/or cost of funding and liquidity; and/or dismissal or resignation of key individuals. In light of the uncertainties involved in legal, competition and regulatory matters, there can be no assurance that the outcome of a particular matter or matters will not be material to Barclays Bank Group’s results of operations or cash flow for a particular period.

 

 

28    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Material existing and emerging risks

 

In January 2017, Barclays Group was sentenced to serve three years of probation from the date of the sentencing order in accordance with the terms of its May 2015 plea agreement with the Department of Justice (DOJ). During the term of probation Barclays Group must, among other things, (i) commit no crime whatsoever in violation of the federal laws of the US, (ii) implement and continue to implement a compliance program designed to prevent and detect the conduct that gave rise to the plea agreement, and (iii) strengthen its compliance and internal controls as required by relevant regulatory or enforcement agencies. Potential consequences of Barclays Group, including Barclays Bank Group, breaching the plea agreement include the imposition of additional terms and conditions on Barclays Group, an extension of the agreement, or the criminal prosecution of Barclays Group, which could, in turn, entail further financial penalties and collateral consequences and have a material adverse effect on Barclays Group’s business, operating results or financial position.

There is also a risk that the outcome of any legal, competition or regulatory matters in which Barclays Bank Group is involved may give rise to changes in law or regulation as part of a wider response by relevant law makers and regulators. A decision in any matter, either against Barclays Bank Group or another financial institution facing similar claims, could lead to further claims against Barclays Bank Group.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    29


Risk review

Principal Risk management

Credit risk management

 

Credit risk (audited)

The risk of loss to the firm from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the firm, including the whole and timely payment of principal, interest, collateral and other receivables.

Overview

The credit risk that Barclays Bank Group faces arises from wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts with clients; trading activities, including: debt securities, settlement balances with market counterparties, FVOCI assets and reverse repurchase loans.

Credit risk management objectives are to:

 

maintain a framework of controls to oversee credit risk;

 

identify, assess and measure credit risk clearly and accurately across Barclays Bank Group and within each separate business, from the level of individual facilities up to the total portfolio;

 

control and plan credit risk taking in line with external stakeholder expectations and avoiding undesirable concentrations;

 

monitor credit risk and adherence to agreed controls;

 

enable risk-reward objectives to be met.

Organisation and structure

Wholesale and retail portfolios are managed separately to reflect the differing nature of the assets; wholesale balances tend to be larger and are managed on an individual basis, while retail balances are greater in number but lesser in value and are, therefore, managed in aggregated segments.

The credit risk management teams in Barclays Bank Group are accountable to the Barclays Bank PLC CRO, who reports to the Barclays Group CRO.

 

LOGO

 

 

30    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Principal Risk management

Credit risk management

 

Roles and responsibilities

The responsibilities of the credit risk management teams in the businesses, the sanctioning team and other shared services include: sanctioning new credit agreements (principally wholesale); setting strategies for approval of transactions (principally retail); setting risk appetite; monitoring risk against limits and other parameters; maintaining robust processes, data gathering, quality, storage and reporting methods for effective credit risk management; performing effective turnaround and workout scenarios for wholesale portfolios via dedicated restructuring and recoveries teams; maintaining robust collections and recovery processes/units for retail portfolios; and development of credit risk measurement models.

For wholesale portfolios, credit risk approval is undertaken by experienced credit risk professionals operating within a clearly defined delegated authority framework, with only the most senior credit officers assigned the higher levels of delegated authority. The largest credit exposures, which are outside the Risk Sanctioning Unit or Risk Distribution Committee authority, require the support of the Barclays Bank PLC Senior Credit Officer. For exposures in excess of the Barclays Bank PLC Senior Credit Officer’s authority, approval by the Barclays Group Senior Credit Officer/Barclays PLC Board Risk Committee is also required. Barclays Group Credit Risk Committee, attended by the Barclays Bank PLC Senior Credit Officer, provides a formal mechanism for the Barclays Group Senior Credit Officer to exercise the highest level of credit authority over the most material Barclays Group single name exposures.

In the wholesale portfolios, credit risk managers are organised in sanctioning teams by geography, industry and/or product.

The role of the Central Risk function is to provide Barclays Group-wide direction, oversight and challenge of credit risk taking. Central Risk sets the Credit Risk Control Framework, which provides the structure within which credit risk is managed, together with supporting credit risk policies and standards.

Governance and oversight of expected credit losses

Barclays Bank Group relies on Barclays Group processes in overseeing the estimation of ECL, including: i) setting requirements in policy, including key assumptions and the application of key judgements; and ii) the design and execution of models.

 

  i.

Impairment policy requirements are set and reviewed regularly by Barclays Group, at a minimum annually, to maintain adherence to accounting standards. Key judgements inherent in policy, including the estimated life of revolving credit facilities and the quantitative criteria for assessing the significant increase in credit risk (SICR), are separately supported by analytical study. In particular, the quantitative thresholds used for assessing SICR are subject to a number of internal validation criteria, particularly in retail portfolios where thresholds decrease as the origination PD of each facility increases. Key policy requirements are also typically aligned to Barclays Bank Group’s credit risk management strategy and practices, for example, wholesale customers that are risk managed on an individual basis are assessed for ECL on an individual basis upon entering Stage 3; furthermore, key internal risk management indicators of high risk are used to set SICR policy, for example, retail customers identified as High Risk Management Accounts are automatically deemed to have met the SICR criteria.

 

  ii.

ECL is estimated in line with internal policy requirements using models which are validated by a qualified independent party to the model development area, the Independent Validation Unit (IVU), before first use and at a minimum annually thereafter. The IVU is a Barclays Group function. Each model is designated an owner who is responsible for:

    Monitoring the performance of the model, which includes comparing predicted ECL versus flow into Stage 3 and coverage ratios; and
    Proposing post-model adjustments (PMA) to address model weaknesses or to account for situations where known or expected risk factors and information have not been considered in the modelling process. Each PMA above an absolute and relative threshold is approved by the IVU for a set time period (usually a maximum of six months) together with a plan for remediation. The most material PMAs are reviewed by the Barclays Bank PLC Chief Risk Officer.

 

   

Models must also assess ECL across a range of future economic conditions. These economic scenarios are generated via an independent model and ultimately set by the Senior Scenario Review Committee, run by Barclays Group. Economic scenarios are regenerated at a minimum annually, to align with Barclays Group’s medium term planning exercise, but also if the external consensus of the UK or US economy materially worsen. The scenario probability weights are also updated when scenarios are regenerated and reviewed by the Senior Scenario Committee. Each model used in the estimation of ECL, including key inputs, are governed by a series of internal controls, which include the validation of completeness and accuracy of data in golden source systems, documented data transformations and documented lineage of data transfers between systems.

 

  iii.

The Barclays Bank Group’s organisational structure and internal governance processes oversee the review of impairment results. The Barclays Bank Group Impairment Forum, formed of members from both Finance, is responsible for overseeing impairment policy and practice across Barclays Bank Group and will approve impairment results. Reported results and key messages are communicated to the Barclays Bank PLC Board Audit Committee, which has an oversight role and provides challenge of key assumptions, including the basis of the scenarios adopted.

Credit risk mitigation

Barclays Bank Group employs a range of techniques and strategies to actively mitigate credit risks. These can broadly be divided into three types:

 

netting and set-off

 

collateral

 

risk transfer.

Netting and set-off

In most jurisdictions in which Barclays Bank Group operates, credit risk exposures can be reduced by applying netting and set-off. In exposure terms, this credit risk mitigation technique has the largest overall impact on net exposure to derivative transactions, compared with other risk mitigation techniques.

For derivative transactions, Barclays Bank Group’s normal practice is to enter into standard master agreements with counterparties (e.g. ISDAs). These master agreements typically allow for netting of credit risk exposure to a counterparty resulting from derivative transactions against the

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    31


    

    

    

 

obligations to the counterparty in the event of default, and so produce a lower net credit exposure. These agreements may also reduce settlement exposure (e.g. for foreign exchange transactions) by allowing payments on the same day in the same currency to be set-off against one another.

Collateral

Barclays Bank Group has the ability to call on collateral in the event of default of the counterparty, comprising:

 

home loans: a fixed charge over residential property in the form of houses, flats and other dwellings. The value of collateral is impacted by property market conditions which drive demand and therefore value of the property. Other regulatory interventions on ability to repossess, longer period to repossession and granting of forbearance may also affect the collateral value.

 

wholesale lending: a fixed charge over commercial property and other physical assets, in various forms.

 

other retail lending: includes charges over motor vehicle and other physical assets; second lien charges over residential property, which are subordinate to first charges held either by Barclays Bank Group or by another party; and finance lease receivables, for which typically Barclays Bank Group retains legal title to the leased asset and has the right to repossess the asset on the default of the borrower.

 

derivatives: Barclays Bank Group also often seeks to enter into a margin agreement (e.g. Credit Support Annex) with counterparties with which Barclays Bank Group has master netting agreements in place. These annexes to master agreements provide a mechanism for further reducing credit risk, whereby collateral (margin) is posted on a regular basis (typically daily) to collateralise the mark to market exposure of a derivative portfolio measured on a net basis. Barclays Bank Group may additionally negotiate the receipt of an independent amount further mitigating risk by collateralising potential mark to market exposure moves.

 

reverse repurchase agreements: collateral typically comprises highly liquid securities which have been legally transferred to Barclays Bank Group subject to an agreement to return them for a fixed price.

 

financial guarantees and similar off-balance sheet commitments: cash collateral may be held against these arrangements.

Risk transfer

A range of instruments including guarantees, credit insurance, credit derivatives and securitisation can be used to transfer credit risk from one counterparty to another. These mitigate credit risk in two main ways:

 

if the risk is transferred to a counterparty which is more creditworthy than the original counterparty, then overall credit risk is reduced

 

where recourse to the first counterparty remains, both counterparties must default before a loss materialises. This is less likely than the default of either counterparty individually so credit risk is reduced.

 

 

32    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Principal Risk management

Market risk management

 

Market risk (audited)

The risk of loss arising from potential adverse changes in the value of the firm’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations.

Overview

Market risk arises primarily as a result of client facilitation in wholesale markets, involving market making activities, risk management solutions and execution of syndications. Upon execution of a trade with a client, Barclays Bank Group will look to hedge against the risk of the trade moving in an adverse direction. Mismatches between client transactions and hedges result in market risk due to changes in asset prices, volatility or correlations.

Organisation and structure

 

 

  LOGO

Market risk oversight and challenge is provided by business Committees and Barclays Group Committees, including the Market Risk Committee.

Roles and responsibilities

The objectives of market risk management are to:

 

understand and control market risk by robust measurement, limit setting, reporting and oversight

facilitate business growth within a controlled and transparent risk management framework

control market risk in the businesses according to the allocated appetite.

To meet the above objectives, a well-established governance structure is in place to manage these risks consistent with the ERMF.

The Barclays Bank PLC Board Risk Committee recommends market risk appetite to the Barclays Bank PLC Board for their approval, within the parameters set by the Barclays PLC Board.

The Market Risk Committee approves and makes recommendations concerning the Barclays Group-wide market risk profile to the Barclays Group Risk Committee. This includes overseeing the operation of the Market Risk Framework and associated standards and policies; reviewing market or regulatory issues and limits and utilisation. The committee is chaired by the Market Risk Principal Risk Lead.

Management Value at Risk

 

estimates the potential loss arising from unfavourable market movements, over one day for a given confidence level

differs from the Regulatory VaR used for capital purposes in scope, confidence level and horizon

back testing is performed to evaluate that the model is fit for purpose.

VaR is an estimate of the potential loss arising from unfavourable market movements if the current positions were to be held unchanged for one business day. For internal market risk management purposes, a historical simulation methodology with a two-year equally weighted historical period, at the 95% confidence level is used for all trading books and some banking books.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    33


Risk review

Principal Risk management

Market risk management

 

The Management VaR model in some instances may not appropriately measure some market risk exposures, especially for market moves that are not directly observable via prices. Market risk managers are required to identify risks which are not adequately captured in VaR (‘risks not in VaR’ or ‘RNIVs’).

When reviewing VaR estimates, the following considerations are taken into account:

 

the historical simulation uses the most recent two years of past data to generate possible future market moves, but the past may not be a good indicator of the future

the one-day time horizon may not fully capture the market risk of positions that cannot be closed out or hedged within one day

VaR is based on positions as at close of business and consequently, it is not an appropriate measure for intra-day risk arising from a position bought and sold on the same day

VaR does not indicate the potential loss beyond the VaR confidence level.

Limits are applied at the total level as well as by risk factor type, which are then cascaded down to particular trading desks and businesses by the market risk management function.

 

 

34    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Principal Risk management

Treasury and Capital risk management

 

Treasury and capital risk

Liquidity risk: The risk that the firm is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.

Capital risk: The risk that the firm has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This includes the risk from the firm’s pension plans.

Interest rate risk in the banking book: The risk that the firm is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities.

Overview

Barclays Bank Group Treasury manages Treasury and Capital Risk exposure on a day-to-day basis with the Barclays Group Treasury Committee acting as the principal management body. To enforce effective oversight and segregation of duties and in line with the ERMF, the Barclays Group Treasury and Capital Risk function is responsible for oversight of key capital, liquidity, interest rate risk in the banking book (IRRBB) and pension risk management activities. The following describes the structure and governance associated with the risk types within the Treasury and Capital risk function.

Organisation and structure

 

 

LOGO

Liquidity risk management (audited)

Overview

The efficient management of liquidity is essential to Barclays Bank Group in retaining the confidence of the financial markets and maintaining the sustainability of the business. There is a control framework in place for managing liquidity risk and this is designed to maintain liquidity resources that are sufficient in amount and quality and funding tenor profile that is adequate to meet the liquidity risk appetite as expressed by the Barclays Bank PLC Board based on internal and regulatory liquidity metrics.

This is achieved via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring. Together, these meet internal and regulatory requirements.

Roles and responsibilities

The Treasury and Capital Risk function is responsible for the management and governance of the liquidity risk mandate defined by the Barclays Bank PLC Board and the production of ILAAPs. Treasury has the primary responsibility for managing liquidity risk within the set risk appetite.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    35


    

    

    

 

Barclays’ comprehensive control framework for managing Barclays Bank Group’s liquidity risk is designed to deliver the appropriate term and structure of funding, consistent with the liquidity risk appetite set by the Barclays Bank PLC Board.

The control framework incorporates a range of ongoing business management tools to monitor, limit and stress test Barclays Bank Group balance sheet and contingent liabilities. Limit setting and transfer pricing are tools that are designed to control the level of liquidity risk taken and drive the appropriate mix of funds. In addition, Barclays maintains a Group Recovery Plan which includes application to Barclays Bank Group. Together, these tools reduce the likelihood that a liquidity stress event could lead to an inability to meet Barclays Bank Group’s obligations as they fall due. The control framework is subject to internal conformance testing and internal audit review.

The Barclays Bank PLC Board approves the Barclays Bank Group funding plan, internal stress tests and results of regulatory stress tests. The Barclays Bank PLC Asset Liability Committee is responsible for monitoring and managing liquidity risk in line with Barclays Bank Group’s funding management objectives, funding plan and risk frameworks. The Barclays Group Treasury and Capital Risk Committee monitors and reviews the liquidity risk profile and control environment, providing Second Line oversight of the management of liquidity risk. The Barclays Bank PLC Board Risk Committee reviews the risk profile, and annually reviews risk appetite and the impact of stress scenarios on the Barclays Bank Group funding plan/forecast in order to agree Barclays Bank Group’s projected funding abilities.

Barclays Bank Group maintains a range of management actions for use in a liquidity stress, these are documented in the Barclays Group Recovery Plan. Since the precise nature of any stress event cannot be known in advance, the actions are designed to be flexible to the nature and severity of the stress event and provide a menu of options that can be drawn upon as required. The Barclays Group Recovery Plan also contains more severe recovery options to generate additional liquidity in order to facilitate recovery in a severe stress. Any stress event would be regularly monitored and reviewed using key management information by Treasury, Risk and business representatives.

Capital risk management (audited)

Overview

Capital risk is managed through ongoing monitoring and management of the capital position, regular stress testing and a robust capital governance framework.

Roles and responsibilities

The management of capital risk is integral to Barclays Bank Group’s approach to financial stability and sustainability management, and is embedded in the way Barclays Bank Group and its businesses operate.

Capital risk management is underpinned by a control framework and policy. The capital management strategy, outlined in the relevant legal entity capital plans, is developed in alignment with the control framework and policy for capital risk, and is implemented consistently in order to deliver on Barclays Bank Group’s objectives, which are aligned to those of the Barclays Group.

The Barclays Bank PLC Board approves the Barclays Bank PLC capital plan, internal stress tests and results of regulatory stress tests and those of relevant Barclays Bank Group entities. The Barclays PLC Board also approves the Barclays Group recovery plan which takes into account management actions identified at the Barclays Bank Group level. Barclays International (BI) Asset and Liability Committee (ALCO) together with the Barclays Group Treasury Committee are responsible for monitoring and managing capital risk in line with Barclays Bank Group’s capital management objectives, capital plan and risk frameworks. The Barclays Bank PLC Board Risk Committee monitors and reviews the capital risk profile and control environment, providing Second Line oversight of the management of capital risk.

For relevant Barclays Bank Group subsidiaries, local management assures compliance with an entity’s minimum regulatory capital requirements by reporting to local ALCOs (or equivalents) with oversight by the BI ALCO and the Barclays Group Treasury Committee, as required.

Barclays Bank Group Treasury has the primary responsibility for managing and monitoring capital. The Barclays Group Treasury and Capital Risk function has responsibility for BI capital risk oversight. Production of the Barclays Bank PLC Solo ICAAP is the joint responsibility of Barclays Bank Group Risk and Barclays Bank Group Finance.

In 2018, Barclays complied with all regulatory minimum capital requirements.

 

 

LOGO

 

 

36    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Principal Risk management

Treasury and Capital risk management

 

Pension risk

Barclays Bank Group maintains a number of defined benefit pension schemes for past and current employees. The ability of the pension fund to meet pension payments is maintained through investments and contributions.

Pension risk arises because the estimated market value of the pension fund assets might decline; investment returns might reduce; or the estimated value of the pension liabilities might increase. Barclays Bank Group monitors the pension risks arising from its defined benefit pension schemes and works with Trustees to address shortfalls. In these circumstances Barclays Bank Group could be required or might choose to make extra contributions to the pension fund. Barclays Bank Group’s main defined benefit scheme was closed to new entrants in 2012.

Interest rate risk in the banking book management

Overview

Banking book operations generate non-traded market risk, primarily through the mismatch between the duration of assets and liabilities and where interest rates on products reset at different dates. As per Barclays Bank Group’s policy to remain within the defined risk appetite, interest rate and FX risks residing in the banking books of the businesses are transferred to Treasury where they are centrally managed. Currently, these risks are transferred to Treasury via funding arrangements, interest rate or FX swaps. However, the businesses remain susceptible to market risk from seven key sources:

 

repricing/residual risk: the impact from the mismatch between the run-off of product balances and the associated interest rate hedges or from unhedged liquidity buffer investments.

 

structural risk: the change to the net interest income on hedge replenishment due to adverse movements in interest rates, assuming that the balance sheet remains constant.

 

prepayment risk: the potential loss in value if actual prepayment or early withdrawal behaviour from customers deviates from the expected or contractually agreed behaviour, which may result in a hedge or funding adjustment at a cost to Barclays Bank Group. Exposures are typically considered (where appropriate) net of any applicable offsetting early repayment charges. This risk principally relates to early repayment of fixed rate loans or withdrawal from fixed rate savings products.

 

recruitment risk: the potential loss in value if the actual completion or drawdown behaviour from customers deviates from the expected behaviour, which may result in a hedge or funding adjustment at a cost to Barclays Bank Group. This risk principally relates to the completion timing around the Barclays Bank Group’s fixed rate mortgage pipeline process.

 

margin compression risk: the effect of internal or market forces on Barclays Bank Group’s net margin where, for example, in a low rate environment any fall in rates will further decrease interest income earned on the assets whereas funding cost cannot be reduced as it is already at the minimum level.

 

lag risk: arises from the delay in repricing customer rates for certain variable/managed rate products, following an underlying change to market interest rates. This is typically driven by either regulatory constraint around customer notification on pricing changes, processing time for Barclays Bank Group’s notification systems or contractual agreements within a product’s terms and conditions.

 

asset swap spread risk: the spread between Libor and sovereign bond yields that arises from the management of the liquidity buffer investments and its associated hedges.

Furthermore, liquidity buffer investments are generally subject to fair value through other comprehensive income (FVOCI) accounting rules, whereby changes in the value of these assets impact capital via other comprehensive income (OCI), creating volatility in capital directly.

Roles and responsibilities

The non-traded market risk team provides risk management oversight and monitoring of all traded and non-traded market risk in Treasury and customer banking books, which specifically includes:

 

interest rate risk assessment in the customer banking books

 

review and challenge the behavioural assumptions used in hedging and transfer pricing

 

risk management of the liquidity buffer investments and funding activities

 

oversight of balance sheet hedging

 

review of residual risk in the hedge accounting solution and hedging of net investments

 

proposes and monitors risk limits to manage traded and non-traded market risk within the agreed risk appetite.

The Barclays International (BI) Asset and Liability Committee (ALCO), together with the Barclays Group Treasury Committee, are responsible for monitoring and managing IRRBB risk in line with Barclays Bank Group’s management objectives and risk frameworks. The Barclays International Risk Committee monitors and reviews the IRRBB risk profile and control environment, providing Second Line oversight of the management of IRRBB risk. The Barclays Bank PLC Board Risk Committee reviews the interest rate risk profile, including annual review of the risk appetite and the impact of stress scenarios on the interest rate risk of the Barclays Bank Group.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    37


Risk review

Principal Risk management

Operational risk management

 

Operational risk

The risk of loss to the firm from inadequate or failed processes, systems, human factors or due to external events (for example, fraud) where the root cause is not due to credit or market risks.

    

Overview

The management of operational risk has three key objectives:

 

Deliver an operational risk capability owned and used by business leaders which is pragmatic, relevant, and enables business leaders to make sound risk decisions over the long term.

Provide the frameworks and policies to enable management to meet their risk management responsibilities while the second line of defence provides robust, independent, and effective oversight and challenge.

Deliver a consistent and aggregated measurement of operational risk that will provide clear and relevant insights, so that the right management actions can be taken to keep the operational risk profile consistent with Barclays Bank Group’s strategy, the stated risk tolerance and stakeholder needs.

Following submission of an application to the PRA relating to Barclays Group’s Advanced Measurement Approach (AMA) permission, Barclays Group received PRA’s approval to use the Standardised Approach (TSA) for operational risk regulatory capital purposes with effect from 1 April 2018. Barclays Group has conservatively elected to retain its previous operational risk RWA amount unchanged for 2018.

Barclays Bank Group is committed to operating within a strong system of internal controls that enables business to be transacted and risk taken without exposing Barclays International to unacceptable potential losses or reputational damages. Barclays Group has an overarching Enterprise Risk Management Framework (ERMF) that sets out the approach to internal governance which Barclays Bank Group adopted.

Organisation and structure

 

 

LOGO

 

 

38    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Principal Risk management

Operational risk management

 

Operational risk comprises a number of specific risk categories defined as follow:

 

Data Management & Information Risk: The risk that Barclays Bank Group’s information is not captured, retained, used or protected in accordance with its value and legal and regulatory requirements.

 

Financial Reporting Risk: The risk of a material misstatement or omission within Barclays Bank Group’s external financial reporting, regulatory reporting or internal financial management reporting.

 

Fraud Risk: The risk of financial loss when an internal or external party acts dishonestly with the intent to obtain an undue benefit, cause a loss to, or to expose either Barclays Bank Group or its customers and clients to a risk of loss.

 

Payments Process Risk: The risk of payments being processed inaccurately, with delays or without appropriate authentication and authorisation. It includes payments processes from initiation through to external settlement, including any repairs or amendments.

 

People Risk: The set of risks associated with employing and managing people, including compliance with regulations, appropriate resourcing for requirements, recruitment and development risks (excluding health and safety related risk).

 

Premises Risk: The risk of business detriment or harm to people due to premises and infrastructure issues.

 

Physical Security Risk: The risk of business detriment, financial loss or harm to people as a result of any physical security incident impacting Barclays Bank Group or a Barclays Bank Group employee - relating to harm to people, unauthorised access, intentional damage to premises or theft or intentional damage to moveable assets.

 

Supplier Risk: The risk that is introduced to Barclays Bank Group as a consequence of obtaining services or goods from another legal entity, or entities, whether external or internal as a result of inadequate selection, inadequate management or inadequate exit management.

 

Tax Risk: The risk of unexpected tax cost in relation to any tax for which Barclays Bank Group is liable, or of reputational damage on tax matters with key stakeholders such as tax authorities, regulators, shareholders or the public. Tax cost includes tax, interest or penalties levied by a taxing authority.

 

Technology Risk: The risk of dependency on technological solutions and failure to develop, deploy and maintain technology solutions that are stable, reliable and deliver business need.

 

Transaction Operations Risk: The risk of customer/client or Barclays Bank Group detriment due to unintentional error and/or failure in the end-to-end process of initiation, processing and fulfilment of an interaction between a customer/client and Barclays Bank Group with an underlying financial instrument (e.g. mortgage, derivative product, trade product etc.) in consideration.

In addition to the above, operational risk encompasses risks associated with prudential regulation. This includes the risk of failing to: adhere to prudential regulatory requirements, including capital adequacy requirements; provide regulatory submissions; or monitor and manage adherence to new prudential regulatory requirements.

These risks may result in financial and/or non-financial impacts including legal/regulatory breaches or reputational damage.

Barclays Bank Group also recognises that there are certain threats/risk drivers that are more thematic and have the potential to impact Barclays Bank Group’s strategic objectives. These are Enterprise Risk Themes which require an overarching and integrated risk management approach. Including:

 

Cyber: The potential loss or detriment to Barclays Bank Group caused by individuals or groups (threat actors) with the capabilities and intention to cause harm or to profit from attacks committed via network information systems against us, our suppliers, or customers/clients.

 

Data: Aligned to the Data Strategy of the firm and encompassing Data risks to the firm from multiple risk categories, including Data Management, Data Architecture, Data Security & Protection, Data Resilience, Data Retention and Data Privacy.

 

Execution: The risk of failing to deliver and implement the agreed initiatives, priorities and business outcomes required to deliver Barclays Bank Group’s Strategy within agreed timelines.

 

Resilience: The risk of the organisation’s ability to survive and prosper in its commercial endeavours in the presence of adverse events, shocks and chronic or incremental changes.

Roles and responsibilities

The prime responsibility for the management of operational risk and the compliance with control requirements rests with the business and functional units where the risk arises. The operational risk profile and control environment is reviewed by business management through specific meetings which cover these items. Businesses and functions are required to report their operational risks on both a regular and an event-driven basis. The reports include a profile of the material risks that may threaten the achievement of their objectives and the effectiveness of key controls, operational risk events and a review of scenarios.

The Barclays Group Head of Operational Risk is responsible for establishing, owning and maintaining an appropriate Barclays Group-wide Operational Risk Management Framework, meanwhile the Barclays Bank PLC Head of Operational Risk is responsible for overseeing the portfolio of operational risk across all businesses.

Operational Risk Management (ORM) acts in a Second Line of Defence capacity, and is responsible for defining and overseeing the implementation of the framework and monitoring Barclays Bank Group’s operational risk profile. ORM alerts management when risk levels exceed acceptable tolerance in order to drive timely decision making and actions by the first line of defence. Operational risk issues escalated from these meetings are considered through the second line of defence review meetings. Depending on their nature, the outputs of these meetings are presented to the Barclays International Risk Committee, Barclays Bank PLC Board Risk Committee and Barclays Bank PLC Board Audit Committee.

Specific reports are prepared by the business and Barclays Bank PLC Head of Operational Risk on a regular basis for the Barclays International Risk Committee and Barclays Bank PLC Board Risk Committee.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    39


Risk review

Principal Risk management

Model risk management

 

Model risk

The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports.

Overview

Barclays Bank Group uses models to support a broad range of activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures, conducting stress testing, assessing capital adequacy, managing client assets, and meeting reporting requirements.

Since models are imperfect and incomplete representations of reality, they may be subject to errors affecting the accuracy of their output. Model errors can result in inappropriate business decisions being made, financial loss, regulatory risk, reputational risk and/or inadequate capital reporting. Models may also be misused, for instance applied to products that they were not intended for, or not adjusted, where fundamental changes to their environment would justify re-evaluating their core assumptions. Errors and misuse are the primary sources of model risk.

Robust model risk management is crucial to assessing and managing model risk within a defined risk appetite. Strong model risk culture, appropriate technology environment, and adequate focus on understanding and resolving model limitations are crucial components.

Organisation and structure

Barclays Group allocates substantial resources to identify and record models and their usage, document and monitor the performance of models, validate models and adequately address model limitations. Barclays manages model risk as an enterprise level risk similar to other principal risks.

Barclays Group has a dedicated Model Risk Management (MRM) function that consists of two main units: the Independent Validation Unit (IVU), responsible for model validation and approval, and Model Governance and Controls (MGC), covering model risk governance, controls and reporting, including ownership of model risk policy and the model inventory.

The model risk management framework consists of the model risk policy and standards. The policy prescribes Barclays Group-wide, end-to-end requirements for the identification, measurement and management of model risk, covering model documentation, development, implementation, monitoring, annual review, independent validation and approval, change and reporting processes. The policy is supported by global standards covering model inventory, documentation, validation, complexity and materiality, testing and monitoring, overlays, risk appetite, as well as vendor models and stress testing challenger models.

Barclays Group is continuously enhancing model risk management. The function reports to the Barclays Group CRO and operates a global framework. Implementation of best practice standards is a central objective of Barclays Group. Model risk reporting flows to senior management as depicted below.

 

 

LOGO

Roles and responsibilities

The key model risk management activities include:

 

 

Correctly identifying models across all relevant areas of the Barclays Bank Group, and recording models in the Barclays Group Models Database (GMD), the Barclays Group-wide model inventory. The heads of the relevant model ownership

 

 

40    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Principal Risk management

Model risk management

 

 

annually attest to the completeness and accuracy of the model inventory. MGC undertakes regular conformance reviews on the model inventory.

 

 

Enforcing that every model has a model owner who is accountable for the model. The model owner must sign off models prior to submission to IVU for validation. The model owner works with the relevant technical teams (model developers, implementation, monitoring, data services, regulatory) to maintain that the model presented to IVU is and remains fit for purpose.

 

 

Overseeing that every model is subject to validation and approval by IVU, prior to being implemented and on a continual basis. While all models are reviewed and re-approved for continued use each year, the validation frequency and the level of review and challenge applied by IVU is tailored to the materiality and complexity of each model. Validation includes a review of the model assumptions, conceptual soundness, data, design, performance testing, compliance with external requirements if applicable, as well as any limitations, proposed remediation and overlays with supporting rationale. Material model changes are subject to prioritised validation and approval.

 

 

Defining model risk appetite in terms of risk tolerance, and qualitative metrics which are used to track and report model risk.

 

 

Maintaining specific standards that cover model risk management activities relating to stress testing challenger models, model overlays, vendor models, and model complexity and materiality.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    41


Risk review

Principal Risk management

Conduct risk management

 

Conduct risk

The risk of detriment to customers, clients, market integrity, effective competition or Barclays from the inappropriate supply of financial services, including instances of wilful or negligent misconduct.

Overview

Barclays Bank Group defines, manages and mitigates conduct risk with the goal of providing positive customer and client outcomes, protecting market integrity and promoting effective competition. This includes taking reasonable steps to assure that Barclays Bank Group culture and strategy are appropriately aligned to these goals; its products and services are reasonably designed and delivered to meet the needs of customers and clients; promoting the fair and orderly operation of the markets in which Barclays Bank Group does business; and Barclays Bank Group does not commit or facilitate money laundering, terrorist financing, bribery and corruption or breaches of economic sanctions.

Product Lifecycle, Culture and Strategy and Financial Crime are the risk categories under conduct risk within the Barclays Group definition of conduct risk.

Organisation and structure

The governance of conduct risk within Barclays Bank Group is fulfilled through management committees and forums operated by the First and Second Lines of Defence with clear escalation and reporting lines to the Barclays Bank PLC Board committees.

The Barclays International Risk Committee is the most senior executive body responsible for reviewing and monitoring the effectiveness of Barclays Bank Group management of conduct risk.

 

 

LOGO

Roles and responsibilities

The Conduct Risk Management Framework (CRMF) comprises a number of elements that allow Barclays Bank Group to manage and measure its conduct risk profile.

Senior Managers have ownership within their areas for managing conduct risk. These individuals have a Statement of Responsibilities identifying the activities and areas for which they are accountable. The primary responsibility for managing conduct risk and compliance with control requirements sits with the business where the risk arises. The Barclays Bank PLC Controls Committee provides oversight of controls relating to conduct risk.

The Barclays Bank PLC Chief Compliance Officer is responsible for providing effective oversight, management and escalation of Conduct Risk in line with the CRMF. This includes overseeing the development and maintenance of the relevant Conduct Risk Policies and Standards and monitoring and reporting on the consistent application and effectiveness of the implementation of controls to manage Conduct Risk.

Businesses are required to report their conduct risks on both a quarterly and an event-driven basis. The quarterly reports detail conduct risks inherent within the business strategy and include forward looking horizon scanning analysis as well as backward looking evidence-based indicators from both internal and external sources.

The Barclays International Risk Committee is the primary Second Line governance forum for oversight of conduct risk profile and implementation of the CRMF. The responsibilities of the Barclays International Risk Committee include approval of the conduct risk tolerance and the business defined key indicators. Additional responsibilities include the identification and discussion of any emerging conduct risks exposures that have been identified.

 

 

42    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Principal Risk management

Reputation risk management

 

Reputation risk

The risk that an action, transaction, investment or event will reduce trust in the firm’s integrity and competence by clients, counterparties, investors, regulators, employees or the public.

Overview

A reduction of trust in Barclays Bank Group’s integrity and competence may reduce the attractiveness of Barclays Bank Group to customers and clients and other stakeholders and could lead to negative publicity, loss of revenue, regulatory or legislative action, loss of existing and potential client business, reduce workforce morale and difficulties in recruiting talent.

Organisation and structure

The governance of reputation risk within Barclays Bank Group is fulfilled through management committees and forums operated by the First and Second Lines of Defence, with clear escalation and reporting lines to the relevant Barclays Bank PLC Board committees.

The Barclays International Risk Committee is the most senior executive body responsible for reviewing and monitoring the effectiveness of Barclays Bank Group management of reputation risk.

 

 

LOGO

Roles and responsibilities

The Reputation Risk Management Framework (RRMF) comprises a number of elements that allow Barclays Bank Group to manage and measure its reputation risk profile.

Reputation risk is by nature pervasive and can be difficult to quantify, requiring more subjective judgement than many other risks. The RRMF sets out what is required to manage reputation risk effectively.

The Barclays Bank PLC Chief Compliance Officer is responsible for maintaining and assessing the appropriateness of the relevant reputation risk policies and oversight of the implementation of controls to manage the risk. Barclays Bank Group is required to prepare reports for the Barclays Group Risk and Barclays PLC Board Risk Committees highlighting the most significant current and potential reputation risks and issues and how they are being managed.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    43


Risk review

Principal Risk management

Legal risk management

 

Legal risk

The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements.

Overview

Overall, Barclays Bank Group has limited tolerance for legal risk, however the multitude of laws and regulations across the globe are highly dynamic and their application to particular circumstances is often unclear. This results in a degree of legal risk. The Barclays Group-wide Legal Risk Management Framework (LRMF), which applies to Barclays Bank Group, comprises a number of integrated components that allows Barclays to identify, manage and measure its legal risk profile, supported by legal risk policies and associated standards aligned to the following legal risks:

 

contractual arrangements – failure to engage Barclays’ Legal Function in relation to contractual arrangements

 

litigation management litigation not being managed by or with the support of Barclays’ Legal Function

 

intellectual property (IP) failure to protect Barclays’ IP assets or infringement of third party IP rights

 

competition/anti-trust failure to identify and escalate competition/anti-trust issues to Barclays’ Legal Function or inappropriate interactions with competition/anti-trust authorities.

 

use of law firms inappropriate instruction of external legal advisors

 

contact with regulators – inappropriate interactions with regulators or inappropriate handling of confidential supervisory information from regulatory or government agencies

 

legal engagement – failure to appropriately engage Barclays’ Legal Function in relation to key business decisions.

Organisation and structure

The Legal Executive Committee oversees, monitors and challenges legal risk across Barclays Group. The Barclays Bank PLC Board Risk Committee is the most senior body within the Barclays Bank Group responsible for reviewing and monitoring the effectiveness of management of risk across the Barclays Bank Group. Escalation paths also exist to the Barclays Group Risk Committee, which oversees, monitors and challenges the effectiveness of risk management across Barclays Group.

 

 

LOGO

Roles and responsibilities

The LRMF requires Barclays’ businesses and functions to integrate the management of legal risk within their strategic planning and business decision making, including managing adherence to minimum control requirements. The Barclays Bank Group businesses are accountable and have primary responsibility for identifying legal risk in their area as well as responsibility for adherence to the minimum control requirements and compliance with the LRMF and legal risk policies.

All employees, regardless of their position, business, function or location, must play a part in the Barclays Bank Group’s legal risk management. Employees are responsible for understanding and taking reasonable steps to manage and minimise legal risk that may arise in the context of their individual roles and responsibilities. Employees are required to be familiar with the LRMF and legal risk policies and to know how to escalate actual or potential legal risk issues.

Legal risk management is everyone’s responsibility, as part of a risk culture aligned to Barclays’ values, promoting transparency and timely escalation and management of risks and issues, supported by clearly defined roles and responsibilities across the Three Lines of Defense.

The Legal Function does not sit in any of the Three Lines of Defense but supports them all. The LRMF details the main activities the Legal Function undertakes to support the Barclays Bank Group in managing risk, including the identification of issues and risks, coverage with appropriate expertise and escalation. The LRMF, legal risk policies and activities of the Legal Function are designed so that the Barclays Bank Group receives advice from appropriate legal professionals in circumstances that are most likely to give rise to legal risk.

The Group General Counsel, supported by the Legal Executive Committee and the Global Head of Legal Risk, Governance and Control, is responsible for maintaining an appropriate LRMF, developing non-financial legal risk tolerances and for overseeing legal risk management.

 

 

44    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Risk performance

Credit risk

 

  Summary of Contents          Page                          

Credit risk represents a significant risk to the Barclays Bank Group and mainly arises from exposure to wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered into with clients.

 

  

    Credit risk overview and summary of performance

     46  
  

    Maximum exposure and effects of netting, collateral and risk transfer

 

     48  

This section outlines the expected credit loss allowances, the movements in allowances during the period, material management adjustments to model output and measurement uncertainty and sensitivity analysis.

  

    Expected credit losses

     50  
  

–     Loans and advances at amortised cost by product

     50  
  

–     Movement in gross exposure and impairment allowance including provisions for loan commitments and financial guarantees

     51  
  

–     Stage 2 decomposition

     54  
     
  

    Management adjustments to models for impairment

     55  
  

    Measurement uncertainty and sensitivity analysis

     56  
     

The Barclays Bank Group reviews and monitors risk concentrations in a variety of ways. This section outlines performance against key concentration risks.

  

    Analysis of the concentration of credit risk

–     Geographic concentrations

–     Industry concentrations

    Approach to management and representation of credit quality

–     Asset credit quality

–     Debt securities

–     Balance sheet credit quality

–     Credit exposures by internal PD grade

 

    

57

62

63

65

66

66

66

68

 

 

 

 

 

 

 

 

Credit Risk monitors exposure performance across a range of significant portfolios.

  

    Analysis of specific portfolios and asset types

–     Credit cards, unsecured loans and other retail lending

 

    

69

69

 

 

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    45


    

    

    

 

Credit risk

 

The risk of loss to the firm from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the firm, including the whole and timely payment of principal, interest, collateral and other receivables.

 

All disclosures in this section (pages 46 to 70) are unaudited unless otherwise stated.

Overview

Credit risk represents a significant risk to the Barclays Bank Group and mainly arises from exposure to wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered into with clients.

IFRS9 Financial Instruments is effective from 1 January 2018, introducing an expected credit loss model using forward looking information which replaces an incurred loss model. The presentation of credit risk within this risk performance section provides additional disclosures under the new standard. Further detail can be found in the Financial statements section in Note 1 Significant accounting policies, Note 9 Credit impairment charges and other provisions and Note 43 Transition disclosures. Descriptions of IFRS 9 terminology can be found in the glossary, available at home.barclays/annualreport.

Summary of performance in the period

Credit impairment charges and other provisions for Barclays Bank Group decreased to £643m in 2018 (2017: £1,553m) reflecting the transfer of the UK banking business on 1 April 2018 to Barclays Bank UK Group. The reduction is further due to single name charges in 2017, the non-recurrence of a £168m charge in Q317 relating to deferred consideration from the Q117 asset sale in US cards, and improved consensus-based macroeconomic forecasts since the adoption of IFRS 9.

Key metrics

Reduction of £3,259m impairment allowance

 

Impairment allowances on loans and advances at amortised cost in Barclays Bank Group decreased by £3,259m to £3,843m (1 January 2018: £7,102m) reflecting the transfer of the UK banking business on 1 April 2018 to Barclays Bank UK Group.

Please see credit risk management section on pages 30 to 32 for details of governance, policies and procedures.

 

 

46    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Risk performance

Credit risk

 

Analysis of the Balance Sheet

Maximum exposure and effects of netting, collateral and risk transfer

The following tables present a reconciliation between the Barclays Bank Group’s maximum exposure and its net exposure to credit risk; reflecting the financial effects of risk mitigation reducing the Barclays Bank Group’s exposure.

For financial assets recognised on the balance sheet, maximum exposure to credit risk represents the balance sheet carrying value after allowance for impairment. For off-balance sheet guarantees, the maximum exposure is the maximum amount that the Barclays Bank Group would have to pay if the guarantees were to be called upon. For loan and other credit related commitments, the maximum exposure is the full amount of the committed facilities.

This and subsequent analyses of credit risk exclude other financial assets not subject to credit risk, mainly equity securities.

The Barclays Bank Group mitigates the credit risk to which it is exposed through netting and set-off, collateral and risk transfer. Further detail on these forms of credit enhancement is presented on page 31 of the credit risk management section.

Overview

As at 31 December 2018, the Barclays Bank Group’s net exposure to credit risk, after taking into account credit risk mitigation, decreased 17% to £655.0bn, driven by the transfer of the UK banking business. Overall, the extent to which the Barclays Bank Group holds mitigation against its total exposure decreased to 40% (2017: 43%).

Of the unmitigated on balance sheet exposure, a significant portion relates to cash held at central banks, cash collateral and settlement balances, and debt securities issued by governments, all of which are considered to be lower risk. Decreases in cash and balances at central banks, loans and advances at amortised cost and off balance sheet loan commitments have driven the decrease in the Barclays Bank Group’s net exposure to credit risk. Trading portfolio liability positions, which to a significant extent economically hedge trading portfolio assets but which are not held specifically for risk management purposes, are excluded from the analysis. The credit quality of counterparties to derivatives, financial investments and wholesale loan assets are predominantly investment grade and there are no significant changes from prior year. Further analysis on the credit quality of assets is presented on pages 65 to 68.

Where collateral has been obtained in the event of default, the Barclays Bank Group does not, ordinarily, use such assets for its own operations and they are usually sold on a timely basis. The carrying value of assets held by the Barclays Bank Group as at 31 December 2018, as a result of the enforcement of collateral, was £6m (2017: £nil).

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    47


    

    

    

 

Maximum exposure and effect of netting, collateral and risk transfer (audited)                          
     Maximum
exposure
     Netting and
set-off
     Cash
collateral
     Non-cash
collateral
     Risk transfer      Net
exposure
 

Barclays Bank Group

As at 31 December 2018    £m      £m      £m      £m      £m      £m  

On-balance sheet:

                                                     

Cash and balances at central banks

     136,359        -        -        -        -        136,359  

Cash collateral and settlement balances

     74,352        -        -        -        -        74,352  

Loans and advances at amortised cost:

                 

Home loans

     13,160        -        (294)        (12,675)        (129)        62  

Credit cards, unsecured and other retail lending

     33,791        -        (607)        (5,063)        (427)        27,694  

Corporate loans

     90,008        (7,546)        (63)        (27,853)        (3,971)        50,575  

Total loans and advances at amortised cost

     136,959        (7,546)        (964)        (45,591)        (4,527)        78,331  

Of which credit-impaired (stage 3):

                 

Home loans

     887        -        (3)        (854)        (30)        -  

Credit cards, unsecured and other retail lending

     645        -        (6)        (231)        (38)        370  

Corporate loans

     558        -        -        (150)        (17)        391  

Total credit-impaired loans and advances at amortised cost

     2,090        -        (9)        (1,235)        (85)        761  

Reverse repurchase agreements and other similar secured lending

     1,613        -        (17)        (1,565)        -        31  

Trading portfolio assets:

                 

Debt securities

     57,134        -        -        (451)        -        56,683  

Traded loans

     7,234        -        -        (154)        -        7,080  

Total trading portfolio assets

     64,368        -        -        (605)        -        63,763  

Financial assets at fair value through the income statement:

                 

Loans and advances

     15,644        -        (11)        (9,690)        -        5,943  

Debt securities

     4,515        -        -        (445)        -        4,070  

Reverse repurchase agreements

     119,391        -        (2,996)        (115,951)        -        444  

Other financial assets

     528        -        -        -        -        528  

Total financial assets at fair value through the income statement

     140,078        -        (3,007)        (126,086)        -        10,985  

Derivative financial instruments

     222,683        (172,014)        (31,475)        (5,502)        (4,712)        8,980  

Financial assets at fair value through other comprehensive income

     44,983        -        -        -        (399)        44,584  

Other assets

     699        -        -        -        -        699  

Total on-balance sheet

     822,094        (179,560)        (35,463)        (179,349)        (9,638)        418,084  

Off-balance sheet:

                 

Contingent liabilities

     19,394        -        (399)        (1,418)        (190)        17,387  

Loan commitmentsa

     257,768        -        (89)        (36,852)        (1,288)        219,539  

Total off-balance sheet

     277,162        -        (488)        (38,270)        (1,478)        236,926  
                                                       

Total

     1,099,256        (179,560)        (35,951)        (217,619)        (11,116)        655,010  

Off-balance sheet exposures are shown gross of provisions of £217m (2017: £79m). See Note 27 for further details.

In addition to the disclosure in this table, Barclays Bank Group holds forward starting reverse repos amounting to £35.5bn (2017: £31.4bn). The balances are fully collateralised.

 

 

48    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Risk performance

Credit risk

 

Maximum exposure and effects of netting, collateral and risk transfer (audited)                          
     Maximum
exposure
     Netting and
set-off
     Cash
collateral
     Non-cash
collateral
     Risk transfer      Net
exposure
 

Barclays Bank Group

 

As at 31 December 2017

   £m      £m      £m      £m      £m      £m  
On-balance sheet:                                                      

Cash and balances at central banks

     171,036        -        -        -        -        171,036  

Cash collateral and settlement balances

     77,172        -        -        -        -        77,172  

Loans and advances at amortised cost:

                 

Home loans

     147,002        -        (158)        (146,554)        -        290  

Credit cards, unsecured and other retail lending

     55,767        -        (228)        (3,995)        (16)        51,528  

Corporate loans

     121,821        (6,617)        (230)        (46,402)        (4,378)        64,194  

Total loans and advances at amortised cost

     324,590        (6,617)        (616)        (196,951)        (4,394)        116,012  

Reverse repurchase agreements and other similar secured lending

     12,546        -        -        (12,226)        -        320  

Trading portfolio assets:

                 

Debt securities

     51,195        -        -        -        -        51,195  

Traded loans

     3,140        -        -        (128)        -        3,012  

Total trading portfolio assets

     54,335        -        -        (128)        -        54,207  

Financial assets at fair value through the income statement:

                 

Loans and advances

     11,037        -        (440)        (5,497)        (344)        4,756  

Debt securities

     15        -        -        -        -        15  

Reverse repurchase agreements

     100,040        -        (426)        (99,428)        -        186  

Other financial assets

     519        -        -        -        -        519  

Total financial assets at fair value through the income statement

     111,611        -        (866)        (104,925)        (344)        5,476  

Derivative financial instruments

     237,987        (184,265)        (33,092)        (6,170)        (5,885)        8,575  

Financial assets at fair value through other comprehensive income

     57,129        -        -        (463)        (853)        55,813  

Other assets

     2,994        -        -        -        -        2,994  

Total on-balance sheet

     1,049,400        (190,882)        (34,574)        (320,863)        (11,476)        491,605  

Off-balance sheet:

                 

Contingent liabilities

     19,012        -        (318)        (1,482)        (228)        16,984  

Loan commitments

     315,573        -        (73)        (31,069)        (1,757)        282,674  

Total off-balance sheet

     334,585        -        (391)        (32,551)        (1,985)        299,658  
                                                       

Total

     1,383,985        (190,882)        (34,965)        (353,414)        (13,461)        791,263  

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    49


Risk review

Risk performance

Credit risk

 

Expected Credit Losses

Loans and advances at amortised cost by product (audited)

The table below presents a breakdown of loans and advances at amortised cost and the impairment allowance with stage allocation by asset classification. Barclays Bank Group does not hold any material purchased or originated credit-impaired assets as at year end.

 

Barclays Bank Group           Stage 2                
As at 31 December 2018   

 

Stage 1

    

 

Not past due

    

 

<=30 days
past due

    

 

>30 days
past due

    

 

Total

    

 

Stage 3

    

 

Totala

 
Gross exposure    £m      £m      £m      £m      £m      £m      £m  

Home loans

     11,486        663        50        147        860        1,194        13,540  

Credit cards, unsecured loans and other retail lending

     29,548        4,381        305        240        4,926        2,078        36,552  

Corporate loans

     81,555        7,480        315        443        8,238        917        90,710  

Total

       122,589            12,524                 670                 830           14,024              4,189          140,802  
Impairment allowance                                                        

Home loans

     26        29        9        9        47        307        380  

Credit cards, unsecured loans and other retail lending

     356        694        118        160        972        1,433        2,761  

Corporate loans

     107        214        11        11        236        359        702  

Total

     489        937        138        180        1,255        2,099        3,843  
Net exposure                                                        

Home loans

     11,460        634        41        138        813        887        13,160  

Credit cards, unsecured loans and other retail lending

     29,192        3,687        187        80        3,954        645        33,791  

Corporate loans

     81,448        7,266        304        432        8,002        558        90,008  

Total

     122,100        11,587        532        650        12,769        2,090        136,959  
Coverage ratio        %          %          %          %          %          %          %  

Home loans

     0.2        4.4        18.0        6.1        5.5        25.7        2.8  

Credit cards, unsecured loans and other retail lending

     1.2        15.8        38.7        66.7        19.7        69.0        7.6  

Corporate loans

     0.1        2.9        3.5        2.5        2.9        39.1        0.8  

Total

     0.4        7.5        20.6        21.7        8.9        50.1        2.7  

Note

a Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances, financial assets at fair value through other comprehensive income, accrued income and sundry debtors. These have a total gross exposure of £120.1bn (1 January 2018: £128.1bn) and impairment allowance of £11m (1 January 2018: £9m). This comprises £9m ECL on £119.6bn stage 1 assets and £2m on £0.5bn stage 2 fair value through other comprehensive income assets.

 

 

50    Barclays Bank PLC 2018 Annual Report on Form 20-F  


    

    

    

 

Movement in gross exposures and impairment allowance including provisions for loan commitments and financial guarantees

The following tables present a reconciliation of the opening to the closing balance of the exposure and impairment allowance. Explanation of the terms: 12-month ECL, lifetime ECL and credit-impaired are included in Note 9 on page 129.

 

Gross exposure for loans and advances at amortised cost (audited)            

Barclays Bank Group

 

    

Stage 1

 

£m

      

Stage 2

 

£m

      

Stage 3

 

£m

      

Total

 

£m

 

As at 1 January 2018

       266,173          49,592          9,081          324,846  

Disposal of business to Barclays Bank UK PLC

       (155,390)          (27,978)          (4,202)          (187,570)  

Net transfers between stages

       4,999          (6,196)          1,197          -  

Business activity in the year

       51,044          1,650          122          52,816  

Net drawdowns and repayments

       (5,635)          767          155          (4,713)  

Final repayments

       (33,493)          (3,811)          (654)          (37,958)  

Disposals

       (5,109)          -          (54)          (5,163)  

Write-offs

       -          -          (1,456)          (1,456)  

As at 31 December 2018

       122,589          14,024          4,189          140,802  
                   
Impairment allowance on loans and advances at amortised cost (audited)            
         

Barclays Bank Group

 

 

    

Stage 1

 

£m

      

Stage 2

 

£m

      

Stage 3

 

£m

      

Total

 

£m

 

As at 1 January 2018

       608          3,112          3,382          7,102  

Disposal of business to Barclays Bank UK PLC

       (168)          (1,490)          (1,278)          (2,936)  

Net transfers between stages

       664          (995)          331          -  

Business activity in the year

       191          114          57          362  

Net re-measurement and movement due to exposure and risk parameter changes

       (740)          597          1,189          1,046  

UK economic uncertainty adjustment

       -          50          -          50  

Final repayments

       (66)          (133)          (72)          (271)  

Disposals

       -          -          (54)          (54)  

Write-offs

       -          -          (1,456)          (1,456)  
As at 31 December 2018a        489          1,255          2,099          3,843  
Reconciliation of ECL movement to impairment charge/(release) for the period                    

ECL movement excluding assets derecognised due to disposals and write-offs

                      1,187  

Net recoveries post write-offs

                      (86)  

Exchange and other adjustments

                      (212)  

Impairment release on loan commitments and financial guaranteesb

                      (48)  

Impairment charge on other financial assets

                                        3  

Income statement charge/(release) for the periodc

                                        844  

Note

a Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances, financial assets at fair value through other comprehensive income, accrued income and sundry debtors. These have a total gross exposure of £120.1bn (1 January 2018: £128.1bn) and impairment allowance of £11m (1 January 2018: £9m). This comprises £9m ECL on £119.6bn stage 1 assets and £2m on £0.5bn stage 2 fair value through other comprehensive income assets.

b Impairment release of £48m on loan commitments and financial guarantees represents reduction in impairment allowance excluding disposal of business to Barclays Bank UK PLC of £116m and exchange and other adjustments of £68m.

c Barclays Bank PLC transferred its UK banking business on 1 April 2018 to Barclays Bank UK PLC. Net impairment charge of £201m (Impairment charges: £217m and recoveries: £16m) relating to the UK banking business for the three months ended 31 March 2018 is included in the reconciliation in “Income statement charge/(release) for the period”

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    51


Risk review

Risk performance

Credit risk

 

Gross exposure on loans and advances has decreased by £184.0bn in 2018 due to the disposal of business to Barclays Bank UK PLC. Excluding this disposal, gross exposure grew by £3.5bn from new lending net of repayments offset by the disposal of a long dated liquidity buffer portfolio of UK gilts.

Net transfers between stages represents the movements of positions from, for example, Stage 1 to Stage 2 following a Significant Increase in Credit Risk (SICR) or to Stage 3 as positions move into default. Equally, improvement in credit quality will result in positions moving to lower stages. These are the primary driver for the changes in impairment allowance and the income statement charge. The improvement in PDs and macroeconomic variables during 2018 resulted in net exposures moving from Stage 2 into Stage 1. The transfers into Stage 3 was from defaulted assets moving mainly from stage 2. Disposals includes the sale of a long dated liquidity buffer portfolio and debt sale activity. Write-offs represent the gross asset write-down during the period.

Excluding the disposal of business to Barclays Bank UK PLC, the impairment allowance decreased by £323m in the period. This is predominantly from write-offs and a positive impact of macroeconomic variables changes during the year, offset by a £50m charge in UK Corporate loans from anticipated economic uncertainty in the UK. Credit quality across wholesale portfolios and underlying arrears rates in the retail portfolio have been relatively stable over the period.

 

Gross exposure for loan commitments and financial guarantees (audited)                                
                             

Barclays Bank Group

 

  

Stage 1

 

    

Stage 2

 

    

Stage 3

 

    

Total

 

 
        £m      £m      £m      £m  

As at 1 January 2018

     275,364        38,867        1,442        315,673  

Disposal of business to Barclays Bank UK PLC

     (60,848)        (6,113)        (294)        (67,255)  

Net transfers between stages

     14,517        (14,577)        60        -  

Business activity in the year

     64,155        749        -        64,904  

Net drawdowns and repayments

     (16,826)        5,505        (562)        (11,883)  

Final repayments

     (27,772)        (7,987)        (225)        (35,984)  

As at 31 December 2018

             248,590                16,444                  421              265,455  
           
Impairment allowance on loan commitments and financial guarantees (audited)                                
                             

Barclays Bank Group

 

  

Stage 1

 

    

Stage 2

 

    

Stage 3

 

    

Total

 

 
      £m      £m      £m      £m  

As at 1 January 2018

     133        259        28        420  

Disposal of business to Barclays Bank UK PLC

     (36)        (51)        -        (87)  

Net transfers between stages

     42        (43)        1        -  

Business activity in the year

     18        -        -        18  

Net re-measurement and movement due to exposure and risk parameter changes

     (51)        (17)        44        (24)  

Final repayments

     (15)        (44)        (51)        (110)  

As at 31 December 2018

     91        104        22        217  

 

 

52    Barclays Bank PLC 2018 Annual Report on Form 20-F  


    

    

    

 

Gross exposure for loans and advances at amortised cost                                
Continuing operations                            
Barclays Bank Group   

Stage 1

 

    

Stage 2

 

    

Stage 3

 

    

Total

 

 
      £m      £m      £m      £m  

As at 1 January 2018

     113,375        19,913        4,831        138,119  

Net transfers between stages

     3,795        (4,588)        793        -  

Business activity in the year

     43,520        1,188        48        44,756  

Net drawdowns and repayments

     (2,773)        1,117        486        (1,170)  

Final repayments

     (30,219)        (3,606)        (590)        (34,415)  

Disposals

     (5,109)        -        (54)        (5,163)  

Write-offs

     -        -        (1,325)        (1,325)  

As at 31 December 2018

     122,589        14,024        4,189        140,802  
           
Impairment allowance on loans and advances at amortised cost                                
Continuing operations                            
Barclays Bank Group   

Stage 1

 

    

Stage 2

 

    

Stage 3

 

    

Total

 

 
      £m      £m      £m      £m  

As at 1 January 2018

     437        1,713        2,108        4,258  

Net transfers between stages

     446        (697)        251        -  

Business activity in the year

     167        86        30        283  

Net re-measurement and movement due to exposure and risk parameter changes

     (506)        220        1,151        865  

UK economic uncertainty adjustment

     -        50        -        50  

Final repayments

     (55)        (117)        (62)        (234)  

Disposals

     -        -        (54)        (54)  

Write-offs

     -        -        (1,325)        (1,325)  

As at 31 December 2018

     489        1,255        2,099        3,843  
           
Gross exposure for loans and advances at amortised cost                                
Discontinued operations                            
Barclays Bank Group   

Stage 1

 

    

Stage 2

 

    

Stage 3

 

    

Total

 

 
      £m      £m      £m      £m  

As at 1 January 2018

     152,798        29,679        4,250        186,727  

Net transfers between stages

     1,204        (1,608)        404        -  

Business activity in the year

     7,524        462        74        8,060  

Net drawdowns and repayments

     (2,862)        (350)        (331)        (3,543)  

Final repayments

     (3,274)        (205)        (64)        (3,543)  

Write-offs

     -        -        (131)        (131)  

Transferred to Barclays Bank UK PLC on 1 April 2018

             155,390                27,978                4,202                187,570  
           
Impairment allowance on loans and advances at amortised cost                                
Discontinued operations                            
Barclays Bank Group   

Stage 1

 

    

Stage 2

 

    

Stage 3

 

    

Total

 

 
      £m      £m      £m      £m  

As at 1 January 2018

     171        1,399        1,274        2,844  

Net transfers between stages

     218        (298)        80        -  

Business activity in the year

     24        28        27        79  

Net re-measurement and movement due to exposure and risk parameter changes

     (234)        377        38        181  

Final repayments

     (11)        (16)        (10)        (37)  

Write-offs

     -        -        (131)        (131)  

Transferred to Barclays Bank UK PLC on 1 April 2018

     168        1,490        1,278        2,936  

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    53


    

    

    

 

Stage 2 decompositiona

 

           
         Net Exposure    ECL
As at 31 December 2018        £m    £m
Quantitative test        9,241    1,116
Qualitative test        3,206    118
30 dpd backstop        322    21
Total Stage 2        12,769    1,255

Note

a

Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding net exposure and ECL has been assigned in order of categories presented.

Stage 2 exposures are predominantly identified using quantitative tests where the lifetime PD has deteriorated more than a pre-determined amount since origination. This is augmented by inclusion of accounts meeting the designated high risk criteria (including watchlist) for the portfolio under the qualitative test. A small number of other accounts (2% of impairment allowances and 3% of net exposure) are included in stage 2. These accounts are not otherwise identified by the quantitative or qualitative tests but are more than 30 days past due. The percentage triggered by these backstop criteria is a measure of the effectiveness of the stage 2 criteria in identifying deterioration prior to delinquency.

For further detail on the three criteria for determining a significant increase in credit risk required for Stage 2 classification, refer to Note 9 on page 129.

 

 

54    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Risk performance

Credit risk

 

Management adjustments to models for impairment (audited)

Management adjustments to impairment models are applied in order to factor in certain conditions or changes in policy that are not incorporated into the relevant impairment models, or to reflect additionally known facts and circumstances at the period end. Where applicable, management adjustments are reviewed and incorporated into future model development.

Portfolios that have total management adjustments to impairment allowance of more than £10m are presented by product below. Information as at 1 January 2018 is prepared on a IFRS 9 basis and information as at 31 December 2017 is prepared on an IAS 39 basis.

During 2018, models have continued to develop and a number of adjustments that were required on IFRS 9 adoption have been incorporated in impairment modelling.

 

Portfolios that have management adjustments greater than £10m by producta (audited)            
     As at 31 December 2018    As at 31 December 2017
     Management
adjustments to
impairment
allowances,
including
forbearance
   Proportion    
of total    
impairment    
allowances    
   Management
adjustments to
impairment
allowances,
including
forbearance
   Proportion of
total impairment
allowances
      £m    %        £m   

%

Credit cards, unsecured loans and other retail lending    (23)    (0.8)        24    0.8
Corporate loans    (11)    (1.6)        68    6.0

Note

a

Positive values relate to an increase in impairment allowance.

Credit cards, unsecured loans and other retail lending: Model adjustments were applied to reflect staging criteria updates during the year.

Corporate loans: Includes a £50m ECL adjustment held in Corporate Bank for the anticipated economic uncertainty in the UK, offset by a material release in the Investment Bank to reduce inappropriate ECL sensitivity to an expanded macroeconomic variable.

 

   

 

Barclays Bank PLC 2018 Annual Report on Form 20-F    55


    

    

    

 

Measurement uncertainty and sensitivity analysis

The measurement of ECL involves increased complexity and judgement, including estimation of probabilities of default (PD), loss given default (LGD), a range of unbiased future economic scenarios, estimation of expected lives, estimation of exposures at default (EAD) and assessing significant increases in credit risk. Impairment charges will tend to be more volatile than under IAS39 and will be recognised earlier. Unsecured products with longer expected lives, such as revolving credit cards, are the most impacted.

Barclays Bank Group uses a five-scenario model to calculate ECL. An external consensus forecast is assembled from key sources, including HM Treasury, Bloomberg and the Urban Land Institute, which forms the baseline scenario. In addition, two adverse scenarios (Downside 1 and Downside 2) and two favourable scenarios (Upside 1 and Upside 2) are derived, with associated probability weightings. The adverse scenarios are calibrated to a similar severity to internal stress tests, whilst also incorporating IFRS 9 specific sensitivities and non-linearity. Downside 2 is benchmarked to the Bank of England’s annual cyclical scenarios and to the most severe scenario from Moody’s inventory, but is not designed to be the same. The favourable scenarios are calibrated to be symmetric to the adverse scenarios, subject to a ceiling calibrated to relevant recent favourable benchmark scenarios. The scenarios include six economic core variables, (GDP, unemployment and House Price Index (HPI) in both the UK and US markets), and expanded variables using statistical models based on historical correlations. All five scenarios converge to a steady state after 8 years.

Scenario weights (audited)

The methodology for estimating probability weights for each of the scenarios involves a comparison of the distribution of key historic UK and US macroeconomic variables against the forecast paths of the five scenarios. The methodology works such that the Baseline (reflecting current consensus outlook) has the highest weight and the weights of adverse and favourable scenarios depend on the deviation from the Baseline; the further from the Baseline, the smaller the weight. The probability weights of the scenarios as of 31 December 2018 are shown below. A single set of five scenarios is used across all portfolios and all five weights are normalised to equate to 100%. The same scenarios and weights that are used in the estimation of expected credit losses are also used for Barclays Group internal planning purposes. The impacts across the portfolios are different because of the sensitivities of each of the portfolios to specific macroeconomic variables, for example, mortgages are highly sensitive to house prices and base rates, credit cards and unsecured consumer loans are highly sensitive to unemployment.

The table below shows the core macroeconomic variables for each scenario and the respective scenario weights.

 

 

Scenario probability weighting (audited)

                                       
As at 31 December 2018   

 

Upside 2

 

%

    

 

Upside 1

 

%

    

 

Baseline

 

%

    

 

Downside 1

 

%

    

 

Downside 2

 

%

 
Scenario probability weighting      9        24        41        23        3  
              

 

Macroeconomic variables (audited)

                                       
As at 31 December 2018   

 

Upside 2

 

%

    

 

Upside 1

 

%

    

 

Baseline

 

%

    

 

Downside 1

 

%

    

 

Downside 2

 

%

 
UK GDPa      4.5        3.1        1.7        0.3        (4.1)  
UK unemploymentb      3.4        3.9        4.3        5.7        8.8  
UK HPIc      46.4        32.6        3.2        (0.5)        (32.1)  
US GDPa      4.8        3.7        2.1        0.4        (3.3)  
US unemploymentb      3.0        3.4        3.7              5.2              8.4  
US HPIc          36.9            30.2              4.1        -        (17.4)  
As at 1 January 2018               
UK GDPa      4.5        3.2        1.8        (0.6)        (5.2)  
UK unemploymentb      3.9        4.1        4.6        5.5        9.0  
UK HPIc      52.9        36.7        2.8        (9.2)        (35.1)  
US GDPa      6.7        4.6        2.1        (1.0)        (5.2)  
US unemploymentb      3.2        3.5        4.1        5.0        9.6  
US HPIc      32.1        27.3        3.4        (2.1)        (20.2)  

Notes

 

a

Highest annual growth in Upside scenarios; 5yr average in Baseline; lowest annual growth in Downside scenarios.

b

Lowest point in Upside scenarios; 5yr average in Baseline; highest point in Downside scenarios.

c

5yr cumulative growth in Upside scenarios; 5yr average in Baseline; cumulative fall (peak-to-trough) in Downside scenarios.

Over the year, the macroeconomic Baseline variables improved in the US, notably HPI. The UK macroeconomic Baseline variables improved slightly overall.

 

 

56    Barclays Bank PLC 2018 Annual Report on Form 20-F  


Risk review

Risk performance

Credit risk

 

ECL under 100% weighted scenarios for key principal portfolios (audited)

The table below shows the ECL for key principal portfolios assuming scenarios have been 100% weighted. Gross exposures are allocated to a stage based on the individual scenario rather than through a probability-weighted approach as is required for Barclays actual impairment allowances. As a result, it is not possible to back solve the weighted ECL from the individual scenarios as a balance may be assigned to a different stage dependent on the scenario.

Portfolios where the risk resides outside of the UK or the US, certain less material portfolios and exposures where ECL estimation methods are based on benchmark approaches or assigned proxy coverage ratios, have been excluded from the below analysis. Material post-model adjustments have also been excluded so that the scenario specific results are comparable. Portfolio adjustments of greater than £10m can be found on page 75.

Balances allocated to stage 3 do not change in any of the scenarios as the transition criteria relies only on observable evidence of default as at 31 December 2018 and not on macroeconomic scenarios.

The Downside 2 scenario represents a severe global recession with substantial falls in both UK and US GDP. Unemployment in both markets rises towards 9% and there are substantial falls in asset prices including housing.

Under the Downside 2 scenario, balances move between stages as the economic environment weakens. This can be seen in the movement of £10.4bn of gross exposure into stage 2 between the Weighted and Downside 2 scenario. ECL increases in Stage 2 predominantly due to unsecured portfolios as economic conditions deteriorate.

 

     

 

Scenarios

 

 
As at 31 December 2018    Weighted      Upside 2      Upside 1      Baseline      Downside 1      Downside 2  
Stage 1 Gross Exposure (£m)                  
Credit cards, unsecured loans and other retail lending      15,399        16,345        15,629        15,437        15,063        12,125  
Corporate loans      80,835        81,346        81,180        80,941        80,517        73,715  
Stage 1 ECL (£m)                  
Credit cards, unsecured loans and other retail lending      208        168        202        205        212        231  
Corporate loans      175        161        163        162