Barclays executives warned internally in March that a project to get a new licence to operate in the UK may lack resources as the company prepares to be split up under new “ringfencing” requirements, according to a document leaked to Business Insider.
All UK banks have to ringfence their banks — separate their risk-taking investment banks and their consumer deposit-taking functions, by 2019. The rules are a response to the 2008 financial meltdown and are aimed at protecting core banking services from systemic failure in a crisis.
If retail banking operations are conducted separately from investment banking activities, the idea is that savings, current accounts, mortgages, and day-to-day banking will not be affected by the activities of those who deal with complex, high-risk and high-return products.
Here’s one of the ways Barclays was considering restructuring itself to meet the new regulations, according to the document:
But the project, led by the Bank of England, is a complex one and hasn’t been attempted before in the UK. The regulator hasn’t yet outlined all the rules and regulations banks will have to follow when putting these ringfences in place.
Barclays and the Bank of England both declined to comment on the story.
This means that, as of March, Barclays wasn’t sure exactly what it should be doing with its compliance people in the new-look bank.
You can see the uncertainty in the compliance design in the slide below. It’s understood that the document represents one of a few design options, though the situation may have changed internally from when it was created earlier this year:
Barclays is already struggling to figure out how to reorganise the bank under the ringfencing project and that problem will be made worse by expected job cuts. Unconfirmed reports in July suggest thatBarclays is considering up to 30,000 job cuts— including middle and back office staff — which is where compliance staff usually sits.
Antony Jenkins, who was ousted as CEO this month by Chairman John McFarlane, was running the place when this document was put together and shows how the bank needed a change at the top. Jenkins was supposed to shepherd the bank into a new era of compliance and social responsibility, after his predecessor, Bob Diamond, left in the midst of the Libor manipulation scandal in 2012. Yet the document suggests that ringfencing — a core legal requirement at Barclays — was still not accomplished three years into the mission.
If there were to be a cutback in compliance, especially at a time of complicated rule changes, it could potentially end up costing the bank in fines because these are the people who are hired to keep the organisation out of trouble.
A lack of compliance people is “a key risk for projects with most challenging time table, notably RFB and its banking licence application,” according to the “risk and issues” page from the Barclays’ Structural Reform Programme document.
The “RFB” refers to the “ring-fenced bank,” or the Barclays retail, corporate and wealth management operation, and the programme to hive off that part from the group’s risk-taking activities.
This is a problem for Barclays, as the bank doesn’t have much political capital to spend with regulators. The Financial Conduct Authority, which has a say in authorizing banking licences, visited the bank 186 times last year, according to a Bloomberg report.
That was more than double the number for HSBC, the second-most frequently visited bank. The FCA fined Barclays £284 million in May this year for failing to control its currency traders, who were accused of rigging the foreign exchange markets.
It’s not very likely that one of Europe’s biggest banks will lose its licence to operate in the UK. For one thing, regulators could simply require the bank to hold more capital to absorb potential losses if it’s perceived as a risk.
But whoever replaces Jenkins will have to somehow find a way to run a bank with a potential compliance problem, that’s changing its legal structure in an uncertain regulatory environment.