Salz Review - Wall Street Journal

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161 Salz Review An Independent Review of Barclays’ Business Practices Compliance 12.51 Barclays’ recent conduct issues have raised particular questions about Compliance. Barclays has grown the Compliance staff from approximately 600 at the end of 2008 to 1,500 at the end of 2012. 253 This increase has reflected, to some extent, moving roles from the business units into Compliance. Barclays also developed compliance policies at both the Group and the business unit levels with guidance on required behaviours and consequences of non-compliance. The Compliance function’s responsibilities have increased, adding resources to support the expanded scope. We are aware that Barclays is currently reviewing the remit of Compliance in the light of the changes to the bank’s operational risk framework. 12.52 We consider it important that Compliance is given sufficient authority within the organisation. Having the Group Head of Compliance on the ExCo helps this. It also helps consideration of compliance issues among senior management in an intensifying regulatory environment. Barclays is seeking to make Compliance more forward looking. Barclays has recently separated the reporting lines of Compliance so as to make it distinct from Legal so that, from 2013, it is a control function in its own right. Compliance is now reporting to the Group Chief Executive, rather than the General Counsel, and is represented on ExCo. 12.53 Since compliance functions have significant controlling responsibilities as well as their advising responsibilities, maintaining their independence is particularly important to the effective execution of their mandate and the escalation of matters from the business units to the Group Head of Compliance. Accordingly, their remuneration arrangements need to be structured so as to avoid conflicts between their incentives and their independence. Recommendation 32: Control functions’ independence and influence To improve the independence, capability and business engagement of control functions in overseeing all risk types, Barclays should promote the authority and influence of the control functions, including Risk, Compliance, Legal, Finance and, in this regard, HR with the primary reporting lines to the Group-level functions. Barclays should ensure it constantly reinforces the compliance culture throughout the bank and should consider making the appointment and removal of the Group Head of Compliance subject to approval of the most appropriate Board committee. The Third Line of Defence – Internal Audit 12.54 The operation of the control environment needs to be further supported by a strong, independent internal audit function as the ‘third line of defence’ – that is able to assure the quality and effectiveness of the controls. 253 Source: Barclays Risk and Compliance, headcount and turnover data; full-time employees.
Salz Review An Independent Review of Barclays’ Business Practices 162 12.55 Barclays’ Internal Audit Charter defines the objective of Barclays Internal Audit as being to “provide independent, reliable, valued, insightful and timely assurance to the Board and Executive Management over the effectiveness of governance, risk management and control over current and evolving risks, in the context of the current and expected business environment.” 254 The staffing of the Internal Audit function increased from 157 in 2003 to 611 in 2012. The function also increased its independence. Since 2003, the Chief Internal Auditor (CIA) has reported functionally to the Chairman of the Board Audit Committee and only administratively to the Group Chief Executive. Business unit audit teams have reported to the Group CIA since 2004. 12.56 In 2009, Barclays Internal Audit was reviewed by an external assessor. The review concluded that it was an industry-leading function which complied with relevant codes and standards, and met the expectations of management, the Board and other stakeholders. 12.57 However, some interviewees felt that the methodologies and metrics followed had resulted in some governance and control issues not being identified early enough by Internal Audit. Barclays has recently identified the need for certain changes, including more rotation of business unit auditors, greater audit focus on the investment bank to reflect its growth, a reduced number of auditable entities, and improved ways of reporting issues. 12.58 Across the industry banks and professional bodies have been reviewing the remit of the internal audit functions to improve their ability to influence the effectiveness of governance, risk management and internal controls. A recent consultation document by the Chartered Institute of Internal Auditors has proposed that the scope and priorities of the audit function include the risk and control culture of the organisation and the risks of poor customer outcomes, giving rise to conduct or reputational risk. 255 We support these recommendations as a practical way to reinforce sound business practices. Recommendation 33: Internal Audit Barclays’ Internal Audit should ensure the effectiveness of its audits in each of the businesses to identify control issues, prioritising high-risk entities. This will be aided by developing specialist internal audit teams able to deal effectively with the bank’s more complex business units. The Internal Audit Charter should be updated and periodically reviewed to ensure that it covers all aspects of governance, control and risk culture, as the business and external environment evolves. 254 Barclays Internal Audit Charter, 25 July 2012. 255 Chartered Institute of Internal Auditors, Effective Internal Audit in the Financial Services Sector, 11 February 2013.
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Salz Review - April 2013
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Salz Review - Wall Street Journal

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