Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
114
Marcus Agius had identified in 2010 or before. But it was the LIBOR crisis in 2012
that gave this subject real priority and urgency.
Risk Oversight
9.64 The division of responsibilities and the coordination of activity between the Barclays
Board and its Board committees requires clarity. As a starting point, the Board itself
must develop clear agreement on the Group’s risk appetite given how fundamental
this is to the bank’s business. It must also be clear as to the allocation of risk
oversight between the Risk, Audit and Citizenship 187 Committees, and also on their
input to the Remuneration Committee.
9.65 We have two primary concerns regarding the way in which the Barclays Board
oversaw risk in recent years. Each may have contributed to problems:
― There was no clear home for Board oversight of operational risk, including
the increasingly important category of conduct risk, although it came within
the formal remit of the Board Risk Committee;
― Reputational risk was not prioritised in the framework of Board decision
making, and lacked formal Board oversight until 2011.
9.66 Setting the Group’s risk appetite for operational risk and monitoring its position
against that appetite was primarily the responsibility of the Board Risk Committee.
Barclays’ 2009 Annual Report 188 explained that “the Board Risk Committee focuses
on risks taken deliberately and overtly, such as credit, market, capital and liquidity
risk, rather than the risks of simply doing business, such as operational risk.”
We have the sense that operational risk was something of an orphan, perhaps
because the risk appetite was less easily capable of being quantified numerically and
managed. Events like LIBOR, non-compliance with sanctions and various mis-selling
allegations, as well as integration, IT and systems issues related to the growth of the
investment bank, demonstrate that financial and reputational damage from
operational failures can be no less severe than that arising from credit and
market risk.
9.67 We are not aware of responsibility for oversight of operational risk being explicitly
passed to any other committee, although we were told that, as is customary, the
Board Audit Committee had the responsibility to review internal controls including
the way in which any control failures affected operational risk. We discuss
operational risk more generally in a Section 12.
9.68 We have seen instances where the reputational impact of events or actions was
greater than anticipated. This suggests to us that there needs to be clear responsibility
for oversight of reputational risk at Board level. This was given to the Citizenship
Committee in 2011 but the Committee met only three times over 2011 and 2012.
It was therefore not well placed to influence the general flow of decisions that could
have involved reputational issues. Before 2011, the Group operated a Brand &
Reputation Committee which, though primarily a management committee, was
187 Recently renamed Board Conduct, Reputation and Operational Risk Committee.
188 Barclays, 2009 Annual Report, March 2010, p. 166.