Barclays Bank Earnings 2018-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

(Mark One)

OR

For the fiscal year ended December 31, 2018

OR

For the transition period from                          to                         

OR

Date of event requiring this shell company report                         

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:

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.

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:

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:

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

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.

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).

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

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

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.

^# 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.

Governance

Corporate governance statement

What we did in 2018

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

  Strategy formulation and monitoring

  Finance and Liquidity

  Governance and risk (including regulatory issues)

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.

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

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

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.

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.

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

During 2018, the principal activities of the Committee included:

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:

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.

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

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.

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

Governance

Corporate governance statement

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

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.

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:

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.

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.

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.

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:

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.

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:

By order of the Board

Jason Wright

Company Secretary

20 February 2019

Barclays Bank PLC

Registered in England. Company No. 1026167

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.

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.

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 review

Content

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

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:

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.

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:

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:

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:

Risk review

Material existing and emerging risks

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:

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

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.

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

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:

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.

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

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

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:

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.

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.

Risk review

Principal Risk management

Credit risk management

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:

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.

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.

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

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

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:

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:

Risk review

Principal Risk management

Market risk management

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

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:

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

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.

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:

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

Risk review

Principal Risk management

Treasury and Capital risk management

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

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’ 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.

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:

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:

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.

Risk review

Principal Risk management

Operational risk management

Overview

The management of operational risk has three key objectives:

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

Risk review

Principal Risk management

Operational risk management

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

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:

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.

Risk review

Principal Risk management

Model risk management

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.

Roles and responsibilities

The key model risk management activities include:

Risk review

Principal Risk management

Model risk management

Risk review

Principal Risk management

Conduct risk management

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.

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.

Risk review

Principal Risk management

Reputation risk management

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.

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.

Risk review

Principal Risk management

Legal risk management

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:

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.

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.

Risk review

Risk performance

Credit risk

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.

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).