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The UK government is implementing a major overhaul of the
UK financial regulatory system aimed at creating a new single
statutory regulator, the Financial Services Authority (FSA), for
the full range of financial business, including deposit-taking
business, securities and other investment business and
insurance business.
The first stage of this reform programme comprised the
implementation of the Bank of England Act 1998 (the 1998
Act), which came into force on 1st June 1998. Under the 1998
Act, responsibility for banking supervision in the UK was
transferred from the Bank of England to the FSA. The Bank
of England retains its monetary policy role and responsibility
for the overall stability of the financial system.
The next step in the reform programme is the implementation
of new legislation (the Financial Services and Markets Act
2000) to replace the existing legislation, including the
Financial Services Act 1986 and the Banking Act 1987
(see below). The Financial Services and Markets Act received
Royal Assent in June 2000 and its substantive provisions are
expected to come into force, together with other necessary
secondary legislation on which HM Treasury has been and is
currently consulting, in the second half of 2001. From then
on the FSA will become a single regulator (replacing other
regulators such as the self-regulating organisations (SROs))
and have a unified handbook of rules and guidance for
financial services.
The primary objective of the FSA (in its role as a bank
supervisor) is to fulfil the responsibilities relating to the safety
and soundness of banks placed on it by the Banking Act
1987 (the 1987 Act) with the aim of strengthening, but not
ensuring, the protection of depositors. Barclays Bank PLC is
an authorised institution under the 1987 Act and is subject
to consolidated supervision by the FSA under that Act.
The FSA’s continuing supervision of banks authorised by it is
conducted through the collection of information from
statistical and prudential returns, reports obtained from banks’
reporting accountants at the FSA’s request, visits to banks and
regular meetings with management to discuss issues such as
performance, risk management and strategy. Under a risk-based
approach rolled out for all banks in 1998 – RATE – the
starting point for the FSA’s supervision of all banks is based on
a systematic analysis of the risk profile of each bank. The FSA
also promulgates requirements that it expects banks (and
groups containing banks which are subject to consolidated
supervision) to meet on matters such as capital adequacy
(see Capital resources), limits on large exposures
to individual entities and groups of closely connected entities,
and liquidity.
UK banks are required to be members of, and to contribute to,
a deposit protection scheme. This entitles depositors with a
failed institution to receive 90% of their protected deposits,
subject to a maximum payment to any depositor of £18,000
(or € 20,000 if greater).
Most deposits made with branches of Barclays Bank PLC
within the European Economic Area (EEA) which are
denominated in sterling or other EEA currencies (including
the euro) are covered by the scheme.
Securities and other investment business is currently regulated
in the UK under the Financial Services Act 1986 (the 1986 Act).
Barclays Bank PLC and certain other subsidiaries are authorised
to conduct investment business in the UK through their
membership of SROs which are recognised by the FSA (in its
role as the regulatory body with oversight responsibilities
under the 1986 Act). As part of the reform programme, the
FSA, under service contracts, now carries out monitoring on
behalf of the SROs and provides them with support services to
enable them to fulfil their functions. The SROs regulate the
conduct of investment business by their members, although to
avoid duplication they do not generally impose separate capital
adequacy requirements on members such as banks where the
FSA acts as the lead regulator. Firms authorised to conduct
investment business are also required to participate in and
contribute to an investors compensation scheme to provide
protection to private investors against the default of a
participating firm up to a limit of £48,000 per investor.
The UK has now largely implemented the minimum
requirements imposed by European Community Directives
on such matters as capital adequacy and deposit and investor
compensation schemes. These form part of the European
single market programme, an important feature of which is
the framework for mutual recognition. This is designed to
enable a bank or investment firm authorised in one European
Union member state to conduct banking or securities and
investment business through branches or cross-border in
other member states without the need for additional local
authorisation.
Formal consultation is a key aspect of the UK government’s
reform programme and the Group has been reviewing and,
where relevant, commenting upon proposals both directly
and through market associations.
The Basel Committee and the European Commission have
issued consultation papers designed to replace the existing
framework for the allocation of regulatory capital for credit
risk. They recognise that a more sophisticated approach
is now required to address both financial innovation and the
increasingly complex risks faced by financial services
institutions. Most recently the Basel Committee and the
European Commission issued in January and February 2001
respectively proposals for a new capital adequacy regime that,
once finalised, will augment the 1988 Basel Capital Accord
and the existing EU capital framework. The final versions of
the rules are expected to be published around the end of 2001
and to be implemented in 2004.
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In the United States, Barclays PLC, Barclays Bank PLC and certain
US subsidiary undertakings, branches and agencies of the Bank
are subject to a comprehensive regulatory structure, involving
numerous statutes, rules and regulations, including the
International Banking Act of 1978, the Bank Holding Company
Act of 1956, as amended, and the Foreign Bank Supervision
Enhancement Act of 1991. Such laws and regulations impose
limitations on the types of businesses, and the ways in which
they may be conducted, in the United States and on the location
and expansion of banking business there. The securities and
investment management activities conducted in the United
States are also subject to a comprehensive scheme of regulation
under the US federal securities laws, as enforced by the
Securities and Exchange Commission.
Barclays operates in many other countries and its overseas
offices and subsidiary and associated undertakings are subject
to reserve and reporting requirements and controls imposed
by the relevant central banks and regulatory authorities.
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