Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
68
7. Regulatory and Tax Matters
7.1 As noted earlier, banks play a vital role in modern economies and in the well-being of
individuals and businesses. The biggest banks are of great importance to society as
employers and taxpayers. They also carry significant risk such that politicians, central
banks and regulators have developed a series of legal and regulatory requirements for
them. Complying with these requirements and engaging with the regulators and other
public bodies are essential responsibilities for banks and their managements. Failure
to do so can inflict reputational damage on a bank and undermine public trust in it.
7.2 The Barclays Board and senior management have rightly emphasised the importance
they put on compliance with regulations and in regulatory relationships. 119 However,
various regulators have expressed concerns about the bank’s historical engagement
with them. Likewise, Barclays says that it goes to great lengths to comply with tax
legislation, and to maintain an open relationship with Her Majesty’s Revenue and
Customs (HMRC). However, some of the tax avoidance schemes that Barclays has
promoted are now seen as aggressive and not in accordance with the spirit of the
relevant tax legislation.
7.3 In this section, we examine Barclays’ engagement with the regulators and the
tax authorities.
Regulatory Engagement
7.4 Successfully managing various stakeholders and balancing their priorities is critical
for all organisations. For banks, regulators are a vitally important stakeholder: they
set the rules, supervise prudential financial strength and business conduct, challenge,
and ultimately approve a bank’s licence to operate. A poor regulatory relationship can
result in onerous challenges for management including withdrawal of a banking
licence, increased capital and liquidity requirements, financial penalties, mandatory
remediation exercises, restrictions on activities and, as was the case for Barclays,
the departure of senior executives and Board members.
7.5 The FSA Handbook contains eleven principles for regulated firms (see Exhibit 3).
Principle 11 states: “A firm must deal with its regulators in an open and cooperative
way, and must disclose to the FSA appropriately anything relating to the firm of
which the FSA would reasonably expect notice.” 120
7.6 An important element of fostering a positive and cooperative relationship with
regulators is therefore open communication and transparency. Some
communications from regulators will always need interpretation and some of their
approaches should rightly be challenged. But banks must listen carefully and not
interpret regulatory requests and feedback too narrowly. Both the Chairman and
119 For example, after its settlement with the US authorities on 18 August 2010: “Barclays is committed to
the highest levels of integrity and regulatory compliance across all of its operations”; Barclays, “Barclays
Bank PLC settlement with US Authorities”, press release, 18 August 2010.
120 FSA, The FSA Principles for Businesses; see: http://fsahandbook.info/FSA/html/handbook/PRIN/2/1.