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151 Salz Review An Independent Review of Barclays’ Business Practices establishing accountabilities, key financial and operating metrics, and reviewing performance of the businesses – with the businesses then fully accountable in implementing the plans. 240 12.6 On becoming Group Chief Executive in 2011, Bob Diamond launched his ‘One Barclays’ programme, which set out to consolidate more activity in the Group Centre – initially around HR and Treasury – to increase efficiency and to forge more of an overall group identity. 12.7 Before Bob Diamond started to reverse the policy of decentralisation, the autonomy given to business units was most apparent in the investment bank, BGI and Barclaycard. These businesses had their own executive committees and, to a large extent, their own control functions. In particular, Barclays Capital (and before it was sold, BGI even more so) was quite separate from the rest of the Group. It had its own name, branding and premises, as well as many of its own systems and processes – including its own general ledger, front and middle office systems, approval processes, and email and calendar system. 12.8 A decentralised operating model has some advantages: increased accountability of business leaders and faster-decision making closer to the customers. A number of interviewees argued that, to be successful, the investment bank had to be run separately. Otherwise it risked being slowed down by the less agile decision-making process and more staid culture elsewhere in the bank. 12.9 We consider that a decentralised model presents additional challenges to the Group Centre of a universal bank such as Barclays – both in ensuring that it has sufficient understanding of the risks taken at a business unit level and in driving behaviours based on the Group’s common values and standards. Without close day-to-day involvement in business unit operations, the Group Centre will tend to place more reliance on individual relationships between the Group Chief Executive and business unit chief executives and between Group Centre function heads and their business unit equivalents. 12.10 US regulatory plans for a holding company 241 and the UK ring-fencing requirements of the Financial Services (Banking Reform) Bill will require Barclays to alter its operating model. The UK’s current proposals require the ring-fenced retail subsidiary bank to be “able to take decisions independently of other members of its group”. 242 The Parliamentary Commission on Banking Standards has recommended separate risk management and governance for the ring-fenced bank. 243 Barclays will need to give careful consideration to the mechanisms required to ensure that subsidiary 240 Internal Barclays documents relating to the 2007 restructuring project. 241 The Federal Reserve Board have proposed rules that would require foreign banking organisations with a significant US presence to create an intermediate holding company over the US subsidiaries to help enhance supervision and regulation of these operations; see: Board of Governors of the Federal Reserve System, press release, 14 December, 2012; http://www.federalreserve.gov/newsevents/press/ bcreg/20121214a.htm. 242 Financial Services (Banking Reform) Bill 2012-13, p. 7; http://www.publications.parliament.uk/pa/bills/cbill/2012-2013/0130/2013130.pdf. 243 Parliamentary Commission on Banking Standards, Second Report, 11 March 2013.
Salz Review An Independent Review of Barclays’ Business Practices 152 business practices remain consistent with the Group’s risk appetite, standards, and values, and that matters of importance do not fall between the cracks. 12.11 Management indicated to us that they recognise the need to build on the existing strengths in some aspects of the bank’s risk management and management oversight to ensure it is consistently robust across all risk types and businesses. Under the Transform Programme, a comprehensive review of the control framework is already underway. Our Review suggests this should focus on ensuring the framework covers all risk types and articulates responsibilities; improving management of operational, conduct and reputational risk; reinforcing the risk culture and business ownership of risk and embedding the risk appetite; and strengthening the control functions. First Line of Defence – Business Ownership of Risk 12.12 In all large complex organisations, whether centralised or decentralised, an effective internal control environment provides assurance to senior management and the Board that business practices are as intended, including maintaining risk levels within pre-approved limits, and adhering to applicable laws and regulations. 12.13 Barclays’ internal control environment is implicitly rather than explicitly based on a ‘three lines of defence’ model. In our view, however, it categorises the main risks, provides a reasonably common language of risk terminology, assigns accountability for risks, and defines the process for managing the control environment. Two particular components are the Group Internal Control & Assurance Framework (GICAF) and the Principal Risks Policy (PRP). 12.14 GICAF sets out the requirements to identify, measure, assess, analyse, report and manage the risks faced by the business. If there are issues with the control of these risks or with compliance with regulations Governance and Control Committees (G&CCs) govern an escalation and management process. The G&CCs include business and control representatives from the relevant business or region as well as an independent member from another business or Group. 12.15 The PRP outlines the process for the management of the Principal Risks. Prior to 2011 Barclays classified credit, market, and funding risks as its Principal Risks. Operational risk was added in 2012, followed by conduct and reputational risks in early 2013. Each Principal Risk is sub-divided into several Key Risks and all are assigned an owner responsible for ensuring that an appropriate risk control framework and a risk appetite to manage the risk are in place. Risk owners must also provide semi-annual attestation regarding the effective discharge of responsibility for the Key Risk. Key Risk owners are responsible for ensuring that independent checks (which Barclays calls ‘conformance testing’) are done in each business to verify the effective operation of controls.
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Salz Review - April 2013
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Salz Review - Wall Street Journal

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