# Barclays Bank Ireland PLC # Annual Report 31 December 2022 # Contents ## Strategic report * Performance review 2 * Managing risk 4 * Performance measures 6 ## Directors’ Report 9 ## Non-financial information * Non-financial information statement 16 * Our people and culture 19 * Climate and sustainability 21 ## Risk review * Risk review contents 31 * Risk management strategy 32 * Material existing and emerging risks 34 * Principal risk management 46 * Risk performance 57 * Supervision and regulation 112 ## Financial statements * Financial statements contents 118 * Independent Auditor’s report 119 * Financial statements 129 * Notes to the financial statements 134 ## Abbreviations 198 --- # Strategic report ## Performance review The Strategic Report was approved by the Board of Directors on 15 March 2023. ### OVERVIEW Barclays Bank Ireland PLC (the ‘Bank’, ‘BBI’ or the ‘Company’) is a wholly owned subsidiary of Barclays Bank PLC (‘BB PLC’). BB PLC is a wholly owned subsidiary of Barclays PLC (‘B PLC’). The consolidation of B PLC and its subsidiaries is referred to as the Barclays Group. The term Barclays refers to either B PLC or, depending on the context, the Barclays Group as a whole. The Bank is licensed as a credit institution by the Central Bank of Ireland (‘CBI’) and is designated as a significant institution, directly supervised by the Single Supervisory Mechanism (‘SSM’) of the European Central Bank (‘ECB’). The Bank is regulated by the CBI for financial conduct and the Bank’s branches are also subject to direct supervision for local conduct purposes by national supervisory authorities in the jurisdictions where they are established. The Bank has issued debt securities listed on regulated European markets and as a result, the Bank has prepared and published this Annual Report in accordance with the requirements for periodic financial information under the Transparency (Directive 2004/109/EC) Regulations 2007, as amended, which apply to the Bank. The Bank is the primary legal entity within the Barclays Group serving Barclays European Economic Area (‘EEA’) clients, with branches in Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, Spain and Sweden, in addition to its Irish Head Office. In July 2022, the Bank completed an ECB Comprehensive Assessment (‘CA’) comprising an asset quality review and stress test. The CA represents the entrance exam to supervision by the ECB's SSM, which the Bank entered in 2019. The ECB determined on the basis of the CA that the Bank did not need any additional capital. The ECB also factors the outcome and any findings of the CA into the ongoing assessment of banks’ risks, their governance arrangements and their capital and liquidity situation as part of the Supervisory Review and Evaluation Process (‘SREP’). ### OUR STRUCTURE The Bank has two business segments, the Corporate and Investment Bank (‘CIB’) and Consumer, Cards and Payments (‘CC&P’). The CIB is comprised of the Corporate Banking, Investment Banking and Markets businesses, providing products and services to money managers, financial institutions, governments, supranational organisations and corporate clients to manage their funding, financing, strategic and risk management needs. CC&P is comprised of Barclays Consumer Bank Europe (‘CBE’) and the Private Bank. Barclays Consumer Bank Europe provides credit cards, online loans, instalment purchase financing, electronic point-of-sale financing and deposits. The Private Bank offers investment, banking and credit capabilities to meet the needs of our clients across the EEA. The Bank’s Italian mortgage portfolio (which is being run off) is held within the Bank’s Head Office. ### MARKET AND OPERATING ENVIRONMENT The initial recovery following the COVID-19 pandemic was abated by the difficult economic conditions experienced in 2022, driven largely by the Russian invasion of Ukraine, soaring energy prices and supply chain difficulties from rapidly increasing demand as lockdowns ended. Global inflationary pressures, and the monetary policy action in the form of interest rate increases by central banks across the globe, had a profound effect on the macroeconomic environment in Europe. In our CIB segment, market volatility, inflation and geopolitical uncertainty created headwinds for deal-making across all products. However, market volatility provided the conditions for a strong year for our Global Markets franchise, particularly the Rates and Fixed Income Financing businesses, whilst our Corporate Banking franchise has benefited from increasing interest rates and payment flows. We continued to assist our clients, ranging from supranational and sovereign to corporate, to access the capital markets for liquidity, capital and investment purposes. Our Investment Banking business continued to capitalise on the opportunities presented by the transition to a low-carbon economy. This included offerings that were linked to our environmental, social and governance(‘ESG’) targets. Our Corporate Banking business supported our clients with multiple bespoke solutions and an expanded ESG product offering. Within CC&P, CBE operates a leading German credit card and personal lending franchise and an innovative partnership providing point-of sale finance for a global e-commerce business. Recovery in consumer activity and spending during 2022 was tempered by the rise in inflation and interest rates, driving changes in consumer behaviour and demand for credit in the latter part of 2022. As a result of the macroeconomic conditions, solid underlying performance was impacted by impairment provisioning. Alongside strong growth in its domestic market in Ireland, the Private Bank continued to execute its expansion plans in France, Italy and Spain. Market uncertainty has moderated Private Bank clients' appetite to invest in regular equity-related strategies, whilst higher market volatility is supporting strong investment in transactional activity. Consistent with Barclays’ strategic priority to capture opportunities as we transition to a low-carbon economy, we continued to innovate our product offering and support our clients’ issuance of green and other sustainability-linked securities. Our ability to adapt to alternative working arrangements and still deliver for our customers and clients is evidence of the resilience and dedication of our colleagues. As we begin 2023, we will work hard to protect and strengthen our culture, find ways to attract and progress talent that suitably reflects the diversity of our communities, and build a supportive working environment within the Bank which can enable us to operate for the benefit of all our stakeholders. --- # Strategic report ## Performance review ### GROWING WITH SOCIETY The following sub-sections include a summary of the BBI’s specific items from the Barclays PLC 2022 Annual Report. For full details, refer to the ‘Society’ section of the Barclays PLC 2022 Annual Report. Our success is judged not only by commercial performance, but also by our contribution to society and in the way we deploy finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability for the common good and the long term. We believe that we can, and should, make a positive difference for society – globally and locally. We do that through the choices we make about how we run our business in light of all relevant risks and other factors, and through the commitments we make to support our clients and communities and to champion sustainability for the long term. We recognise that we are at our best when our clients, customers, communities and colleagues all progress. Our focus on society falls broadly into three categories: Climate, Communities and Suppliers. #### Climate Addressing climate change is an urgent and complex challenge, but also an opportunity. It requires a fundamental transformation of the global economy. The financial sector has an important role to play in supporting the transition to a low-carbon economy and at Barclays, we are determined to play our part consistent with our Purpose and relevant business and risk considerations. In 2020, the Barclays Group announced an ambition to be a net zero bank by 2050, across all of its direct and indirect emissions, and committed to align all of its financing activities with the goals and timelines of the Paris Agreement. The Barclays Group made it clear at the time that it would approach the climate challenge thoughtfully and transparently, engaging with shareholders and other stakeholders and reporting our progress. In doing so, the Barclays Group also recognises the importance of supporting a just transition considering the social risks and opportunities of the transition and seeking to ensure effective dialogue with affected stakeholders. The Bank applies the policies of the Barclays Group in response to climate change. For more details on the Bank’s response to climate change and the environment, please see climate and sustainability section on pages 21 to 30. #### Communities In the communities in which it operates, the Barclays Group is supporting people to develop the skills and confidence they need to succeed now and in the future. It collaborates with experienced partners, employability experts and businesses to develop meaningful and innovative programmes that aim to deliver a significant positive impact over the long-term. We remain committed to our purpose of deploying finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability, for the common good and the long term. After a thorough evaluation, in 2022, we launched a joint work programme with INCO across five countries (France, Germany, Ireland, Italy and Spain) to deliver programmes that seek to provide equitable access to the knowledge, skills and habits necessary to secure employment in digital industries. INCO provides free technology skills training for people facing barriers to employment, including: young people not in education, employment or training; women who are underrepresented in science, technology, engineering and mathematics jobs; people experiencing intergenerational poverty; and migrants, refugees and asylum seekers and people with disabilities. The programmes aim to secure IT jobs for at least 80% of its graduates within six months of completing the programme. More information on how the Barclays Group is supporting communities can be found in the Barclays PLC 2022 Annual Report. #### Suppliers As a global institution, the Barclays Group has responsibility for a large supply chain. The Barclays Group engages directly with suppliers seeking to promote diversity, equity and inclusion and are committed to identifying and addressing modern slavery risks across our operations, supply chain, and customer and client relationships. --- # Strategic Report ## Managing risk The Bank is exposed to internal and external risks as part of its ongoing activities. These risks are managed as part of our business model. ### Enterprise Risk Management Framework Within the Bank, risks are identified and overseen in accordance with the Enterprise Risk Management Framework (‘ERMF’), which supports the business in its aim to embed effective risk management and a strong risk management culture. The ERMF governs the way in which the Bank identifies and manages its risks. The ERMF is approved by the Barclays PLC Board on the recommendation of the Barclays Group Chief Risk Officer; it is then adopted by the Bank with modifications where needed. Given the increasing risks associated with climate change, and to support the Group’s ambition to be a net zero bank by 2050, Climate risk became a Principal Risk at the start of 2022. The management of risk is embedded into each level of the business, with all colleagues being responsible for identifying and controlling risk. ### Risk appetite Risk appetite defines the level of risk we are prepared to accept across the different risk types, taking into consideration varying levels of financial and operational stress. Risk appetite is key to our decision-making processes, including ongoing business planning and setting of strategy, new product approvals and business change initiatives. The Bank may choose to adopt a lower risk appetite than allocated to it by the Barclays Group. ### Three lines of defence The first line of defence is comprised of the revenue-generating and client-facing areas, along with all associated support functions, including Finance, Treasury, Human Resources, Operations and Technology. The first line identifies the risks, sets the controls and escalates risk events to the second line of defence. Employees in the first line have primary responsibility for their risks and their activities are subject to oversight from the relevant parts of the second and third lines. The second line of defence is made up of Risk and Compliance and oversees the first line by setting limits, rules and constraints on their operations, consistent with the risk appetite. The third line of defence is comprised of Internal Audit, providing independent assurance to the BBI Board and the BBI Executive Committee on the effectiveness of governance, risk management and control over current, systemic and evolving risks. The Legal function provides support to all areas of the Bank and is not formally part of any of the three lines of defence. The Legal function is responsible for the identification of all legal and regulatory risks. Except in relation to the legal advice it provides or procures, it is subject to second line oversight with respect to its own operational and conduct risks, as well as with respect to the legal and regulatory risks to which the Bank is exposed. For further detailed analysis of our approach to risk management and risk performance see the full Risk review on pages 32 to 111. --- # Strategic Report ## Managing risk The Enterprise Risk Management Framework defines nine Principal Risks | Principal Risks | Risks are classified into Principal Risks, as below | How risks are managed | | :--- | :--- | :--- | | **Climate Risk** | The impact on Financial and Operational Risks arising from climate change through physical risks, risks associated with transitioning to a lower carbon economy and connected risks arising as a result of second order impacts of these two drivers. | The Barclays Group and the Bank assess and manage climate risk across businesses and functions in line with the Barclays Group’s net zero ambition by monitoring exposure to elevated risk sectors, conducting scenario analysis and risk assessments for key portfolios. Climate Risk became a Principal Risk in 2022. Climate risk controls are embedded across the Financial and Operational Principal Risk types through the Barclays Group's Frameworks, Policies and Standards (which apply to the Bank). | | **Credit Risk** | The risk of loss to the Bank from the failure of clients, customers or counterparties (including sovereigns), to fully honour their obligations to the Bank, including the whole and timely payment of principal, interest, collateral and other receivables. | Credit risk teams identify, evaluate, sanction, limit and monitor various forms of credit exposure, individually and in aggregate. | | **Market Risk** | The risk of loss arising from potential adverse changes in the value of the Bank’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations. | A range of complementary approaches to identify and evaluate market risk are used to capture exposure to market risk. These are measured, limited and monitored by market risk specialists. | | **Treasury and Capital Risk** | **Liquidity Risk:** The risk that the Bank is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets. **Capital Risk:** The risk that the Bank has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments and stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This also includes the risk from the Bank’s defined benefit pension plans. **Interest Rate Risk in the banking book:** The risk that the Bank is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. | Treasury and capital risk is identified and managed by specialists in Capital Planning, Liquidity, Asset and Liability Management and Market Risk. A range of approaches are used appropriate to the risk, such as limits, plan monitoring and stress testing based on real time/timely information from our operations. | | **Operational Risk** | The risk of loss to the Bank from inadequate or failed processes or systems, human factors or due to external events (for example fraud) where the root cause is not due to credit or market risks. | The Bank assesses and manages its operational risk and control environment across its businesses and functions with a view to maintaining an acceptable level of residual risk. | | **Model Risk** | The potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. | Models are evaluated for approval prior to implementation, and on an ongoing basis. | | **Conduct Risk** | The risk of poor outcomes for, or harm to, customers, clients and markets, arising from the delivery of the Bank's products and services. | The Conduct Risk Management Framework (‘CRMF’) sets out the control objectives and minimum control requirements which must be implemented to manage Conduct Risk. A selection of tools is mandated in the CRMF and Barclays Control Framework to support with the assessment of Conduct Risks, whilst the governance of Conduct Risk is fulfilled through management committees and forums with clear escalation and reporting lines to Board-level committees. | | **Reputation Risk** | The risk that an action, transaction, investment, event, decision, or business relationship will reduce trust in the Bank’s integrity and/or competence. | Reputation risk is managed by embedding our purpose and values, and maintaining a controlled culture within the Bank, with the objective of acting with integrity, enabling strong and trusted relationships to be built with customers and clients, colleagues and broader society. Each business assesses reputation risk using standardised tools and the governance is fulfilled through management committees and forums, clear escalation and reporting lines to the BBI Board. | | **Legal Risk** | The risk of loss or imposition of penalties, damages or fines from the failure of the Bank to meet its legal obligations, including regulatory or contractual requirements. | Legal risk is managed by the identification of legal risks by the Legal Function, the engagement of the Legal Function in situations that have the potential for legal risk, and the escalation of legal risk as necessary. | Note: The ERMF defines nine Principal Risks. For further information on how these Principal Risks apply specifically to the Bank, please see pages 46 to 56. --- # Strategic Report ## Performance measures ### Key performance highlights | Income statement: | 2022 €m | 2021 €m | | :--- | :--- | :--- | | Total income | 1,430 | 1,196 | | Operating expenses | (1,106) | (968) | | Profit before impairment | 324 | 228 | | Credit impairment (charges)/releases | (167) | 97 | | Profit before tax | 157 | 325 | | Tax charge | (57) | (90) | | Profit after tax | 100 | 235 | | Attributable to other equity instrument holders | (48) | (40) | | Profit attributable to ordinary shareholders | 52 | 195 | | **Cost: income ratio^a** | **77%** | **81%** | | **No. of employees at 31 December (full time equivalent)** | **1,776** | **1,708** | | Balance Sheet information: | 2022 €bn | 2021 €bn | | :--- | :--- | :--- | | **Assets** | | | | Cash and balances at central banks | 30.5 | 24.1 | | Cash collateral and settlement balances | 18.5 | 17.7 | | Loans and advances to customers | 13.9 | 13.1 | | Trading portfolio assets | 7.7 | 8.2 | | Financial assets at fair value through the income statement | 17.2 | 15.4 | | Derivative financial instruments | 40.4 | 33.9 | | **Total assets** | **132.5** | **117.1** | | **Liabilities** | | | | Deposits from customers | 25.8 | 21.4 | | Cash collateral and settlement balances | 24.7 | 17.1 | | Trading portfolio liabilities | 12.9 | 10.3 | | Subordinated liabilities | 4.7 | 3.2 | | Financial liabilities designated at fair value | 14.9 | 13.8 | | Derivative financial instrument | 32.5 | 33.5 | | **Total equity** | **6.5** | **5.9** | | Credit quality: | 2022 | 2021 | | :--- | :--- | :--- | | % of loans and advances to customers impaired^b (%) | 4.2% | 4.6% | | Expected Credit Loss (‘ECL’) coverage on loans and advances to customers^c (%) | 3.7% | 3.3% | | ECL coverage on impaired loans and advances to customers^d (%) | 43% | 40% | | Capital and liquidity^e: | 2022 | 2021 | | :--- | :--- | :--- | | Risk weighted assets^f (€bn) | 35.2 | 32.1 | | Common equity tier 1 (‘CET1’) (transitional)^g,h (€bn) | 5.9 | 5.2 | | CET1 (transitional)^h,i (%) | 16.7% | 16.1% | | Total regulatory capital (transitional)^h,i (%) | 22.4% | 21.4% | | Liquidity pool^j (€bn) | 30.7 | 25.4 | | Liquidity coverage ratio (‘LCR’)^k (%) | 194% | 171% | | Net stable funding ratio (‘NSFR’) (%) | 149% | 148% | | Loan to Deposit ratio^l | 54% | 61% | *Notes:* *a Operating expenses (excluding impairment) divided by total income (see page 129).* *b Stage 3 gross loans and advances to customers divided by total gross loans and advances to customers (see page 63).* *c Total ECL on loans and advances to customers divided by total gross loans and advances to customers (see page 63).* *d Stage 3 ECL on loans and advances to customers divided by stage 3 gross loans and advances to customers (see page 63).* *e Capital and liquidity requirements are part of the regulatory framework governing how banks and depository institutions are supervised.* *f Risk weighted assets (‘RWAs’) are measured in accordance with the provisions of the Capital Requirements Regulation (‘CRR’) and the Capital Requirements Directive IV (‘CRD IV’) as amended by the Capital Requirements Regulation II (‘CRR II’) and the Capital Requirements Directive V (‘CRD V’).* *g CET1 is a measure of capital that is predominantly common equity as defined by the CRR, as amended by CRR II.* *h The Bank is now reporting its CET1 and associated ratios inclusive of certain reserves, which amount to €189.5m, as eligible core equity under CRR II. The 31 December 2021 CET1, CET1 ratio and total capital ratio above have been restated accordingly. Excluding these reserves, the 31 December 2021 CET1, CET1 ratio and total regulatory capital ratio were €5.0bn, 15.5% and 20.8% respectively.* *i Capital ratios express a bank’s capital as a percentage of its RWAs (see page 105).* *j The Bank’s liquidity pool represents its stock of high quality liquid assets (‘HQLA’s), which are high or extremely high liquidity and credit quality assets as defined by Commission Delegated Regulation (EU) 2015/61, commonly referred to as the ‘Delegated Act’.* *k The liquidity coverage ratio expresses a bank’s HQLA’s as a percentage of its stressed net outflows over a 30 day period as defined by the Delegated Act.* *l Loans and advances to customers, net of ECL, divided by deposits from customers (see page 131).* --- ### Income statement commentary The Bank earned a profit before impairment in the year ended 31 December 2022 of €324m (2021: profit before impairment €228m), an improvement of €96m, due to an increase in total income of €234m, partially offset by an increase in costs of €138m. The Bank earned a profit before tax in the year ended 31 December 2022 of €157m (2021: profit before tax of €325m). This represented a decrease of €168m, reflecting an increase in impairment charges of €264m offset by an increase in profit before impairment of €96m. The CIB segment had a profit before tax of €270m, an increase of €16m on 2021. CC&P incurred a loss before tax of €(8)m, a decrease of €135m from its profit before tax of €127m in 2021, driven by €134m of impairment charges, compared to a release of €24m in 2021. The loss in Head Office was €(105)m, an increase of €49m from the loss before tax of €(56)m in 2021. This loss in Head Office is primarily driven by Treasury activities and Italian mortgage portfolio. Total income increased by €234m to €1,430m (2021: €1,196m), largely reflecting: - an increase in CIB income to €1,117m; an increase of €254m or 29% (2021: €863m), primarily due to increased trading income in our Markets business as a result of increased client activity and significant market volatility, together with an increase in fee income from our parent BB PLC, whilst in our Corporate business, income growth was driven by increased client activity from the roll out of enhanced transaction banking capabilities and the rising interest rate environment. - an increase in CC&P income to €368m, €29m or 9% higher (2021: €339m), primarily reflecting ongoing recovery from the COVID-19 pandemic for our Consumer Bank Europe business. Partly offset by: - losses in Head Office of €(55)m, an increase of €49m (2021: €6m loss). This increase is primarily driven by Treasury activities, which included the result of the re-estimation in 2021 and 2022 of cash flows on drawings under the ECB’s Targeted Longer Term Refinancing Operations (‘TLTRO III’) as a result of changes in the terms of TLTRO III announced by ECB. During the year, the Bank reviewed some of the transfer pricing arrangements it has in place with other Barclays Group companies. This review resulted in an amendment in arrangements between the Bank and its Parent, to reflect the benefits derived by the Parent from managing market risk in respect of Markets-based transactions between the Bank and EEA domiciled customers. The impact of this revised arrangement was to recognise an additional €43m income within Fee Income and Commission for the year (representing 4% of total Fee Income). Operating expenses increased by €138m to €1,106m (2021: €968m), primarily due to investment spend on the growth initiatives underway in CIB and higher bank levies, including the Single Resolution Fund levy. Credit impairment charges (net) increased by €(264)m to a charge of €(167)m (2021: net release of €97m), driven by a net increase in modelled impairment in response to the macroeconomic deterioration, partially offset by the release of COVID-19 uncertainty adjustments. The Bank’s profit after tax for the year ended 31 December 2022 was €100m (2021: €235m). The Bank incurred a tax charge of €(57)m (2021: €(90)m). The effective tax rate of 36.3% is higher than the corporation tax rate in Ireland of 12.5%, primarily due to the profits earned outside of Ireland being taxed at local statutory tax rates that are higher than the Irish tax rate and prior year adjustments. ### Balance sheet commentary As at 31 December 2022, total assets were €132.5bn, an increase of €15.4bn compared to 31 December 2021 (€117.1bn), primarily driven by increases in derivative financial assets and cash at central banks. Derivative financial assets increased by €6.6bn to €40.4bn, primarily driven by the impact of the increase in major interest rates on derivative values, market volatility and increased activity during the period, partially offset by an amendment to the Clearing Terms of Business (‘CToBs’) between the Bank and BB PLC which results in the mark to market of cleared derivatives being settled daily by cash payments rather than being collateralised. The increase in central bank placings by €6.4bn to €30.5bn was primarily driven by an increase in customer deposits and capital issuances. Customer deposits increased by €4.4bn or 20% in 2022 to €25.8bn primarily due to an increase in short-term deposits. Customer loans and advances increased by €0.9bn or 7% to €13.9bn. As a result, the loan to deposit ratio reduced from 61% as at 31 December 2021 to 54% as at 31 December 2022. The increase in loan balances is primarily due to increased lending within CIB and CC&P, which was partially offset by repayments in the Bank’s Italian mortgage portfolio which is being run off. The loan to deposit ratio of 54% reflects a position where the Bank continues to be able to fund customer loans from customer deposits. ECL provisions increased by €110m from €477m to €587m, of which €46m is ECL on loan commitments and financial guarantees, with the impairment charge for the year being primarily driven by macroeconomic deterioration. Our coverage ratio on loans and advances to customers increased from 3.3% to 3.7%. ECL provisions include post model adjustments of €38m (2021: €101m), with the decrease in post model adjustment primarily driven by the release of COVID-19 uncertainty adjustments and macroeconomic deterioration captured within the model output. ### Other Metrics and Capital The Bank forecasts its liquidity position on a daily basis as the balance sheet asset and liability maturity profile changes. The Bank has sufficient buffers over the required minimum levels of daily liquidity necessary to meet its regulatory liquidity requirements and its own risk appetite. In addition, the Bank has a contingency funding plan in place. The Bank held a liquidity pool of €30.7bn as at 31 December 2022 (2021: €25.4bn). This comprised balances with central banks of €29.9bn^a (2021: €23.4bn^a) and reverse repurchase agreements entered into for liquidity purposes of €0.8bn (2021: €2.0bn), both of which met the requirements for classification as High Quality Liquidity Assets (‘HQLA’). The LCR increased from 171% to 194% primarily due to increased corporate and money market deposits, structured funding issuances and incremental Tier 3 and equity issuances. --- The Bank’s Net Stable Funding Ratio (‘NSFR’) at 31 December 2022 was 149% (2021: 148%), which is above the regulatory minimum requirement of 100% under CRR II for the Bank. The Bank’s CET1 ratio (transitional basis) was 16.7% as at 31 December 2022 (2021: 16.1%). The movement in the year was due primarily to issuances of CET1, partially offset by increased RWAs in the year. The Bank’s total regulatory capital ratio (transitional basis) was 22.4% as at 31 December 2022 (2021: 21.4%). The Bank’s capital continues to be managed on an ongoing basis to ensure there are sufficient capital resources. *Note* *a. Residual central bank balances related to minimum reserves.* ### POST BALANCE SHEET EVENTS There have been no significant events affecting the Bank since year end. ### FUTURE DEVELOPMENTS The Bank is reviewing its business model in line with the ECB's ongoing cross industry desk mapping review exercise. In addition, the Bank continues to review opportunities to optimise its business portfolio and operational approach, which could lead to further changes in 2023. ### NON-FINANCIAL INFORMATION Information required in accordance with the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 can be found in the Non-financial information statement on pages 16 to 18. ### OTHER INFORMATION Information on research and development, existence of branches of the Bank and financial risk management objectives and policies can be found in the Directors’ Report on page 9. --- # Directors’ Report The Directors present their report together with the financial statements for the financial year ended 31 December 2022. The Bank has chosen, as noted in this Directors’ Report, to include certain matters in its Strategic Report that would otherwise be disclosed in this Directors’ Report. Other information that is relevant to the Directors’ Report, and which is incorporated by reference into this report, can be located at: | | Pages | | :--- | :--- | | Performance measures | 6 | | Non-financial information statement | 16 | | Risk management | 32 | | Principal risks | 32 | | Financial instruments | 151 | ### REVIEW OF THE BUSINESS AND LIKELY FUTURE DEVELOPMENTS A detailed review of the Bank’s business activities is provided on page 2, and the performance for the year and an indication of likely future developments are detailed on page 8, in each case within the Strategic Report. ### PROFITS AND DIVIDENDS The Bank's profit after tax for the financial year ended 31 December 2022 was €100m (2021: €235m). No dividends were paid on the Bank’s ordinary shares in 2022 (2021: €nil) and the Directors do not propose to make a dividend payment on the Bank’s ordinary shares for the financial year ended 31 December 2022 (2021: €nil). ### SHARE CAPITAL At 31 December 2022, the Bank had 898,669,034 ordinary shares of €1.00 each in issue (2021: 898,668,934). Further details on the Bank’s capital is set out in Note 28 to the financial statements. ### PRINCIPAL RISKS AND UNCERTAINTIES The Bank is exposed to internal and external risks as part of its ongoing activities. These risks include (among other things) credit risk, market risk, liquidity risk, climate risk, operational risk and conduct risk. For a description of the Bank’s ERMF, the risks faced by the Bank and the management of those risks, please see the Risk review on pages 32 to 111. The Bank continues to monitor the impact on its risk profile of the macroeconomic headwinds of sustained inflationary pressure, including on energy prices and the cost of living, higher interest rates, the Russian invasion of Ukraine and increased market volatility. ### FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Information regarding the Bank’s financial risk management objectives and policies in relation to the use of financial instruments is set out in the Risk review on pages 32 to 111. ### POLITICAL DONATIONS The Directors have satisfied themselves that there were no political donations that require disclosure under the Electoral Acts, 1997 (as amended). ### ENVIRONMENT Information regarding the Bank’s approach to environmental matters can be found on pages 21 to 30. ### RESEARCH AND DEVELOPMENT In the ordinary course of business, the Bank develops new products and services in each of its business segments. ### BRANCHES OUTSIDE THE STATE At 31 December 2022, in addition to its Irish Head Office, the Bank had branches in Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, Spain and Sweden. --- ### GOING CONCERN In preparing the Bank’s financial statements, the Directors are required to: - assess the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and - use the going concern basis of accounting, unless they either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so. This involves an assessment of the future performance of the business, to provide assurance that the Bank has the resources in place that are required to meet its ongoing regulatory requirements. The assessment is based upon business plans which contain future forecasts of profitability taken from management’s three year medium term plan as well as projections of future regulatory capital requirements and business funding needs. This also includes details of the impact of internally generated stress testing scenarios on the liquidity and capital requirement forecasts. The stress tests used were based upon management’s assessment of reasonably possible economic scenarios that the Bank could experience. This assessment showed that the Bank had sufficient capital in place to support its future business requirements and remained above its regulatory minimum requirements in the stress test scenarios. It also showed that the Bank has an expectation that it can continue to meet its funding requirements during the scenarios. The Directors concluded that there was a reasonable expectation that the Bank has adequate resources to continue as a going concern for the foreseeable future. The Bank’s business activities, financial position, capital, factors likely to affect its future development and performance, and its objectives and policies in managing the financial risks to which it is exposed are discussed in the Strategic Report and Risk Management sections of this report. The Directors have evaluated these risks in the preparation of the consolidated and company financial statements and consider it appropriate to prepare the financial statements on a going concern basis. ### ACCOUNTING RECORDS The measures taken by the Directors to secure compliance with the Bank’s obligation to keep adequate accounting records are the appointment of professionally qualified accounting personnel with appropriate expertise, ensuring the provision of adequate resources to the Bank’s Finance function and the use of appropriate systems. The Bank’s accounting records are kept at its registered office at 1 Molesworth Street, Dublin 2, Ireland. ### STATUTORY AUDITORS KPMG, Chartered Accountants, were first appointed Statutory Auditor on 24 April 2017 and, pursuant to section 383(2) of the Companies Act 2014, as amended (‘Companies Act 2014’), will continue in office. ### DISCLOSURE OF RELEVANT INFORMATION TO AUDITORS The Directors in office at the date of this report have confirmed that, as far as they are aware: - there is no relevant audit information of which the Bank’s auditor is unaware; and - they have taken all the steps that ought to be taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Bank’s auditor is aware of that information. ### CORPORATE GOVERNANCE The Bank is subject to the CBI’s Corporate Governance Requirements for Credit Institutions 2015 (the ‘Requirements’), including the additional obligations set out in the Requirements as the Bank is designated as High Impact by the CBI. A statement of compliance with the Requirements is prepared and signed annually by the Board and is submitted to the CBI alongside the Annual Report. The Board aspires to have high standards of corporate governance and has adopted corporate governance arrangements which it believes are appropriate to apply and are designed to ensure effective decision-making to promote the Bank’s success for the long term. The Board’s primary aim is that its governance arrangements: - are effective in providing advice and support to management; - provide checks and balances and encourage constructive challenge; - drive informed, collaborative and accountable decision-making; and - create long-term sustainable value for the Bank’s shareholder, the ultimate shareholders of B PLC and our wider stakeholders. A Group-wide governance framework is set by Barclays and has been designed to facilitate the effective management of the Barclays Group. This includes the setting of the Barclays Group policies and approach in relation to matters such as Barclays’ Purpose, Values and Mindset, Barclays’ Remuneration Policy and Barclays’ Charter of Expectations. Where appropriate, this governance makes reference to those Barclays Group policies which are relevant to the way in which the Bank is governed. --- A description of the main features of the Bank’s internal control and risk management systems in relation to its financial reporting process is set out in the section titled ‘Controls over Financial Reporting’ on page 13. The Bank is not subject to the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006. ### DIRECTORS The names of persons who were Directors at any time during the financial year ended 31 December 2022, or who have been appointed since that date, are set out below. | Directors | Appointed/Resigned | Nationality | Position | | :--- | :--- | :--- | :--- | | Tim Breedon CBE ^(1),(4) | | British | Board Chair and Chair of Board Nominations Committee | | Etienne Boris ^(1), (2), (3), (4) | | French | Board Audit Committee Chair | | Thomas Huertas ^(1), (2), (3), (4), (5) | | American | Board Risk Committee Chair | | Eoin O’Driscoll ^(1), (2), (3), (4), (5) | | Irish | Board Remuneration Committee Chair | | Jennifer Allerton ^(1), (2), (3), (4), (5) | | British | | | Francesco Ceccato ^(6) | | Italian | Chief Executive Officer | | Jasper Hanebuth ^(6) | | German | Chief Financial Officer | | Joanna Nader ^(1), (3), (4) | Appointed 22 August 2022 | British/Canadian | | *(1): Independent non-executive Director* *(2): Member of the Board Audit Committee* *(3): Member of the Board Risk Committee* *(4): Member of the Board Nominations Committee* *(5): Member of the Board Remuneration Committee* *(6): Executive Director* ### COMPANY SECRETARY Francesca Carbonaro ### COMPANY NUMBER 396330 ### DIRECTORS' AND COMPANY SECRETARY'S INTERESTS During the year ended 31 December 2022, certain of the Directors and the Company Secretary had interests in the ordinary shares of the Bank’s ultimate parent company, B PLC. At no point during the year ended 31 December 2022 did this interest exceed 1% of B PLC’s ordinary share capital. Save as provided above, none of the Directors or Company Secretary had any interests in ordinary shares, debentures or other debt securities of any member of the Barclays Group during the year ended 31 December 2022. ### THE BOARD Executive and Non-Executive Directors share the same duties and are subject to the same constraints. However, a clear division of responsibilities has been established. The Chair is responsible for leading the Board and its overall effectiveness, demonstrating objective judgement and promoting a culture of openness and constructive debate between all Directors. The Chair facilitates the effective contribution of the Board and ensures Directors receive accurate, clear and timely information. It is the Board’s responsibility to ensure that management delivers on short-term objectives, whilst promoting the long-term success of the Bank in the context of the Barclay’s Group. The Board is also responsible for ensuring that management maintains an effective system of internal control which should provide assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. The Bank’s Schedule of Matters Reserved to the Board specifies those decisions to be taken by the Board, including but not limited to material decisions relating to strategy, risk appetite, medium term plans, capital and liquidity plans, risk management and controls frameworks, reputation risk, approval of financial statements, and approval of share allotments and dividends. The Board has delegated the responsibility for making and implementing operational decisions and running the Bank’s business on a day-to-day basis to the Chief Executive Officer (‘CEO’) and his senior management team. The current Board comprises of a Chair, two Executive Directors, and five independent Non-Executive Directors. The majority of the Board are independent Non-Executive Directors bringing significant expertise (including external perspectives) and independent challenge. --- ### BOARD COMMITTEES The Board has established four board sub-committees, which are the Audit Committee, Risk Committee, Nominations Committee and Remuneration Committee. Each Board Committee has delegated authority from the Board in respect of the functions and powers, which are set out in each Committee’s Terms of Reference. The Chair of each Board Committee provides a report on the proceedings of each Committee meeting at the next scheduled Board meeting, including any matters being recommended for approval. #### Audit Committee The Bank’s Board Audit Committee (‘BAC’) is comprised solely of independent Non-Executive Directors, is a Committee of the Board and assists the Board in monitoring: - the integrity of the Bank’s accounting policies and contents of its financial statements and the disclosure controls and procedures; - the effectiveness of the Bank’s internal controls; - the effectiveness of the internal and external audit functions and processes; - the performance and independence of the external auditors; and - the effectiveness of the Bank’s whistleblowing procedures. #### Risk Committee The Bank’s Board Risk Committee (‘BRC’) is comprised solely of independent Non-Executive Directors, is a Committee of the Board and assists the Board in: - reviewing the risk profile of the Bank; - considering the risk appetite and risk tolerance for financial and non-financial risks bearing in mind the current financial situation of the Bank and the present and future strategy; - reviewing the management of the Principal Risks in the ERMF to ensure that they are in line with the Bank’s business strategy, objectives, corporate culture and values; - overseeing the implementation of strategies for capital and liquidity management, as well as for all relevant risks, such as market, credit and operational risks (including legal, human resources and IT risks), in order to assess their adequacy against the approved risk appetite and strategy; and - assessing the risks associated with the Bank’s offered financial products and services, taking into account the alignment between the prices assigned to and the profits gained from those products and services. #### Nominations Committee The Bank’s Board Nominations Committee is comprised solely of independent Non-Executive Directors, is a Committee of the Board and assists the Board in fulfilling its responsibilities relating to: - identifying individuals who are best able to discharge the duties and responsibilities of Directors and Key Function Holders (individuals holding CBI Pre-Approval Controlled Function roles) for the Bank in line with legal and regulatory requirements; - the composition, appointments, succession and evaluating the effectiveness of the Board, ensuring that both appointments and succession policies are based on suitability, merit and objective criteria including promoting diversity of gender, age and social and ethnic background, cognitive and personal strengths; and - the adoption of appropriate internal policies on the assessment of the suitability of Directors, members of the Bank’s Executive Committee and other key personnel subject to regulatory approval. #### Remuneration Committee The Bank’s Board Remuneration Committee is comprised solely of independent Non-Executive Directors, is a Committee of the Board and assists the Board in fulfilling its responsibilities relating to: - the over-arching principles and parameters of the remuneration policy for the Bank; - the incentive pool for the Bank and the remuneration of key BBI executives and other specified individuals as determined by the Committee; and - oversight of remuneration issues. ### ACCOUNTABILITY The Board has put processes in place to support the presentation to stakeholders of fair, balanced and understandable information. The Board is responsible for setting the Bank’s risk appetite within the overall parameters set by BB PLC, that is the level of risk it is prepared to take in the context of achieving the Bank’s and the Barclays Group’s strategic objectives. The ERMF is designed to identify and set minimum requirements in respect of the main risks to achieving the Bank’s strategic objectives and to provide reasonable assurance that internal controls are effective. The Board, assisted by the BRC, conducts robust assessments of the principal risks facing the Bank, including those that would threaten its business model, future performance, solvency or liquidity. --- The BAC oversees the effectiveness of the Bank’s internal and external auditors. The Directors also review the effectiveness of the Bank’s systems of internal control and risk management. ### CONTROLS OVER FINANCIAL REPORTING A framework of disclosure controls and procedures is in place to support the approval of the Bank’s financial statements. Specific committees and accountable individuals are responsible for examining the financial reports and disclosures to help ensure that they have been subject to adequate verification and comply with applicable standards and legislation. Relevant accountable individuals report their conclusions to the BAC, which debates the conclusions and provides further challenge. Finally, the Board scrutinises and approves the results announcement and the Annual Report to ensure that appropriate disclosures have been made. This governance process is designed to ensure that both management and the Board are given sufficient opportunity to debate and challenge the Bank’s financial statements and other significant disclosures before they are made public. ### AUDIT, RISK AND INTERNAL CONTROL The Bank is committed to operating within a strong system of internal control that enables business to be transacted and risk taken without exposure to unacceptable potential losses or reputational damage. The Board is responsible for ensuring that management maintains an effective system of risk management and internal control and for assessing its effectiveness. Such a system is designed to identify, evaluate and manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable, rather than absolute, assurance against material misstatement or loss. Processes are in place for identifying, evaluating and managing the principal risks facing the Bank. A key component of the framework is the ERMF which supports the business in its aim to embed effective risk management and a strong risk management culture. The ERMF is designed to identify and set minimum requirements, in respect of the main risks, to achieve the Bank’s strategic objectives and to provide reasonable assurance that internal controls are effective. Further detail on the Principal Risks and management of them can be found in the Risk review on pages 46 to 56. The effectiveness of the risk management and internal control systems is reviewed regularly by the BRC and the BAC (as detailed above). The BRC is responsible for providing oversight and advice to the Board in relation to current and potential future risk exposures, examining reports covering the principal risks including those that would threaten the Bank’s business model, future performance, solvency or liquidity, as well as reports on risk measurement methodologies and risk appetite. As referenced above, the BAC carries out several duties delegated to it by the Board, including oversight of financial reporting processes, reviewing the effectiveness of internal controls, considering whistleblowing arrangements and oversight of the work of the external and internal auditors. Throughout the year ended 31 December 2022 and to the date of this report, the Bank has operated an effective system of internal control that provides reasonable assurance of financial and operational controls and compliance with laws and regulations. The Board, assisted by the BAC, is responsible for ensuring the independence and effectiveness of the internal and external audit functions. For this reason, the BAC members met periodically with the Bank’s Chief Internal Auditor and the Key Audit Partner/Lead Audit Engagement Partner of the external auditor without management present. Management is responsible for establishing and maintaining adequate internal controls over financial reporting under the supervision of the principal executive and financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements, in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the EU. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail: - accurately and fairly reflect transactions and dispositions of assets; - provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS as adopted by the EU and that receipts and expenditures are being made only in accordance with authorisations of management and the respective Directors; and - provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of assets that could have a material effect on the financial statements. Internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in the Bank’s internal control over financial reporting that occurred during the period covered by this report which have materially affected or are reasonably likely to materially affect the Bank’s internal control over financial reporting. --- ### EXECUTIVE COMMITTEE During 2022, the Executive Committee membership included the Bank’s CEO, Chief Financial Officer (‘CFO’), Chief Operating Officer (‘COO’), Chief Risk Officer (‘CRO’), and leaders of each business unit, Human Resources, Legal and Compliance. The Executive Committee meets regularly (albeit virtually for the majority of the year) and is chaired by the CEO. The Executive Committee is also attended by the Bank’s Chief Internal Auditor to ensure full transparency of all matters discussed at the Committee and to inform the audit plan. In addition to the day-to-day management of the Bank, the Executive Committee supports the CEO in ensuring that the values, strategy and culture align, are implemented and are communicated consistently to colleagues – for example, through regular leadership team conferences and communications that are available to all colleagues. ### DIVERSITY, EQUITY AND INCLUSION The Board recognises the importance of ensuring that there is broad diversity among the Directors inclusive of, but not limited to, gender, ethnicity, geography and business experience. In addition, the Bank aims to ensure that employees of all backgrounds are treated equally and have the opportunity to be successful. The Barclays Group’s global diversity, equity and inclusion (‘DEI’) strategy, which is supported by the Bank, sets objectives, initiatives and plans across six areas of focus: Gender, LGBT+, Disability, Multicultural, Multigenerational and Socio-economic inclusion, in support of that ambition. ### DIRECTORS’ COMPLIANCE STATEMENT The Directors acknowledge that they are responsible for securing the Bank’s compliance with its relevant obligations under the Companies Act 2014. The Directors confirm that: - a compliance policy statement setting out the Bank’s policies, that in the Directors’ opinion are appropriate to the Bank, regarding compliance by the Bank with its relevant obligations has been drawn up; - appropriate arrangements or structures that are designed to secure material compliance with the Bank’s relevant obligations have been put in place; and - a review of these arrangements and structures has been conducted during the financial year ended 31 December 2022. ### STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS The Directors are responsible for preparing the Annual Report and the consolidated and Company financial statements in accordance with, and subject to, applicable law and regulations. Irish company law requires the Directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the Consolidated and Company financial statements in accordance with IFRS as adopted by the EU. Under Irish company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the Bank’s assets, liabilities and financial position as at the end of the financial year and of the profit or loss of the Bank for that year. In preparing the financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - state whether applicable Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; - assess the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and - use the going concern basis of accounting unless they either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Bank and which enable them to ensure that the financial statements of the Bank comply with the provisions of the Companies Act 2014. The Directors are responsible for such internal controls as they determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking all reasonable steps to ensure such records are kept which enable them to ensure that the financial statements of the Bank comply with the provisions of the Companies Act 2014. The Directors are responsible for safeguarding the assets of the Bank, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for preparing a Directors’ Report that complies with the requirements of the Companies Act 2014. The Directors are responsible for the maintenance and integrity of the corporate and financial information included in respect of the Bank which is on the Barclays Group website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. --- The current Directors, whose names and functions are set out on page 11, confirm to the best of their knowledge that: - they have complied with the above requirements in preparing the Consolidated and Company financial statements; - the Consolidated and Company financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Bank; - the management report contained within the Strategic Report, on pages 2 to 8, includes a fair review of the development and performance of the business and the position of the Bank, together with a description of the principal risks and uncertainties that the Bank faces; and - the Annual Report and the financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for the Bank’s shareholder to assess the Bank’s position and performance, business model and strategy. On behalf of the Board Tim Breedon CBE, Chair Francesco Ceccato, Chief Executive Officer Jasper Hanebuth, Chief Financial Officer 15 March 2023 --- # Non-financial information statement The Non-Financial Reporting requirements of the European Union (Disclosure of Non-Financial and Diversity information by certain large undertakings and groups) Regulations 2017 are addressed within this section by means of cross reference. We have used cross referencing as appropriate to deliver clear, concise and transparent reporting. The Barclays Group has a range of policies and guidance (available at home.barclays/sustainability/esg-resource-hub/) that support key outcomes in respect of non-financial performance for all of its stakeholders. Across the Barclays Group, policies and statements of intent are in place to ensure consistent governance on a range of issues. For the purposes of the Non-Financial Reporting requirements, these include, but are not limited to: ## Environmental statements^a | Statement or policy position | Description | Information to help understand the Bank, and its impact, policies, due diligence and outcomes | | :--- | :--- | :--- | | **Climate Change statement** | The Barclays Position on Climate Change sets out our approach, based on a consideration of all risk and market factors, to certain energy sectors with higher carbon-related exposures or emissions from extraction or consumption, or those which may have an impact in certain sensitive environments or on communities, namely thermal coal mining, coal-fired power generation, mountain top coal removal, oil sands, Arctic oil and gas, and hydraulic fracturing (‘fracking’). The statement outlines the Barclays Group’s focus on supporting its clients to transition to a low-carbon economy, while helping to limit the threat that climate change poses to people and to the natural environment. | See our ‘Climate and Sustainability’ section from page 21 to 30 | | **Forestry and Agricultural Commodities statement** | The Barclays Group recognises that the forestry and agribusiness industries are responsible for producing a range of commodities such as timber, palm oil and soy that are often associated with significant environmental and social impacts, particularly in relation to biodiversity loss, tropical deforestation and climate change. The Barclays Group Forestry and Agricultural Commodities Statement outlines its due diligence approach for clients involved in these activities, ensuring that the Barclays Group supports clients that promote sustainable forestry and agribusiness practices while respecting the rights of workers and local communities. | See the ‘Managing impacts in lending and financing’ section on pages 21 to 22 within ‘Climate and Sustainability’ section | | **World Heritage Site and Ramsar Wetlands statement** | The Barclays Group understands that certain industries can impact areas of high biodiversity value including United Nations Educational, Scientific and Cultural Organisation (‘UNESCO’) World Heritage Sites (‘WHS’) and Ramsar Wetlands (‘RW’). The Barclays Group’s WHS and RW statement outlines the Barclays Group’s client due diligence approach to preserving and safeguarding these sites. | See our ‘Nature and biodiversity’ section on pages 22 to 23 within our ‘Climate and Sustainability’ section | | **Environmental risk in lending** | The Barclays Group is committed to managing the direct and indirect environmental risks associated with commercial lending. Environmental risk is regarded as a credit risk driver, and is considered in the Barclays credit risk assessment process through the Barclays Group Environmental Risk Standard. A dedicated Environmental and Climate Risk team at Barclays Group level is responsible for advising on environmental and climate-related credit risks to Barclays associated with particular transactions and industries. Environmental risks in credit are governed under the Client Assessment and Aggregation Policy and Standard which are embedded within the Wholesale Credit Risk Control Framework, which is part of the Enterprise Risk Management Framework. | See our Climate risk section on page 46 | | **Climate Change, Financial Risk and Operational Risk Policy** | The Climate Change Financial Risk and Operational Risk Policy outlines the requirements and policy objectives for assessing and managing the impact on Financial and Operational Risks arising from the physical, transition and connected risks associated with climate change. This incorporates identification, measurement, management and reporting. Financial and Operational Risks / Themes associated with Climate Change are being managed in accordance with the requirements set out in this policy. | See our Climate risk section on page 46 | *Note* *a The Bank applies the policies of Barclays Group in response to climate change and the environment and applicable laws and/or regulations in the EU and UK.* --- ## Colleagues | Statement or policy position | Description | Information to help understand the Bank, and its impact, policies, due diligence and outcomes | | :--- | :--- | :--- | | **Board Diversity Policy** | The Barclays Group Board Diversity Policy confirms that the Board Nominations Committee will consider candidates on merit against objective criteria and with due regard to the benefits of diversity in identifying suitable candidates for appointment to the Board. | See detail on ‘Our people and culture’ on page 19 | | **Code of Conduct** | The Barclays Way is our code of conduct and outlines the Purpose, Values and Mindset which govern our way of working across our business globally. It constitutes a reference point covering all aspects of colleagues’ working relationships, and provides guidance on working with colleagues, customers and clients, governments and regulators, business partners, suppliers, competitors and the broader community | N/A | | **Measures of Success** | The Bank uses a variety of tools to track and measure its strategic delivery, and collects both quantitative and qualitative information to develop the full picture of its performance. | See detail on ‘Our people and culture’ on page 19 | ## Social matters | Statement or policy position | Description | Information to help understand the Bank, and its impact, policies, due diligence and outcomes | | :--- | :--- | :--- | | **Donations** | The Barclays Group works in partnership with non-profit organisations, including charities and non-governmental organisations, to develop high-performing programmes and volunteering opportunities that harness the skills and passion of our employees. The Barclays Group has chosen to partner with a small number of organisations, allowing us to have deeper relationships and ultimately enabling us to have the greatest impact on our communities in which we operate. The Barclays Group does not accept unsolicited donation requests. | [home.barclays/content/dam/homebarclays/documents/citizenship/ourreporting-and policypositions/Barclaysdonationguidelines.pdf](home.barclays/content/dam/homebarclays/documents/citizenship/ourreporting-and policypositions/Barclaysdonationguidelines.pdf) | | **Tax** | The Barclays Group’s Tax Principles are central to the Bank’s approach to tax planning, for ourselves or on behalf of our clients. Since their introduction in 2013, we believe the Barclays Group’s Tax Principles have been a strong addition to the way we manage tax, ensuring that we take into account all of our stakeholders when making decisions related to our tax affairs. The same applies to the Barclays Group’s Tax Code of Conduct. | N/A | | **Sanctions** | Sanctions are restrictions on activity with targeted countries, governments, entities, individuals and industries that are imposed by bodies such as the United Nations (‘UN’), the EU, individual countries or groups of countries. The Barclays Group Sanctions Policy is designed to ensure that the Bank and the Barclays Group comply with applicable sanctions laws in every jurisdiction in which they operate. | N/A | | **Defence sector** | The Barclays Group Statement on the Defence Sector outlines the Barclays Group’s appetite for defence-related transactions and relationships. The Barclays Group provides financial services to the defence sector within a specific policy framework. Transactions and relationships are assessed on a case-by-case basis and legal compliance alone does not automatically guarantee our support. | N/A | --- ## Human rights | Statement or policy position | Description | Information to help understand the Bank, and its impact, policies, due diligence and outcomes | | :--- | :--- | :--- | | **Human rights** | The Barclays Group is committed to operating in accordance with the International Bill of Human Rights and takes account of other internationally accepted human rights standards, including the UN Guiding Principles on Business and Human Rights. We take steps to ensure we are respecting human rights in our operations through our employment policies and practices, in our supply chain through screening and engagement, and through the responsible provision of our products and services. | See the ‘Managing impacts in lending and financing’ section on pages 21 to 22 within the ‘Climate and Sustainability’ section | | **Modern slavery** | The Barclays Group recognises its responsibility to comply with all relevant legislation including the UK Modern Slavery Act 2015. In accordance with the requirements of this Act, the Barclays Group releases an annual Statement on Modern Slavery, which outlines the actions the Barclays Group has taken in seeking to identify and address the risks of modern slavery and human trafficking in our operations, supply chain, and customer and client relationships. | Further details on our Barclays Group Statement on Modern Slavery can be found at: [home.barclays/sustainability/esg-resource-hub/ reporting and-disclosures/](home.barclays/sustainability/esg-resource-hub/ reporting and-disclosures/) | | **Third-party code of conduct** | Our approach to the way we do business needs to be adopted by our suppliers when acting on behalf of the Barclays Group. To ensure a common understanding of our approach which will help us collectively drive the highest standards of conduct, we have created our Third Party Code of Conduct, which details our expectations for Environmental Management, Human Rights, Diversity and Inclusion; and living the Barclays Values. | N/A | | **Data protection** | Across the Barclays Group, the privacy and security of personal information is respected and protected. The Barclays Group Privacy website page governs how we collect, handle, store, share, use and dispose of information about people. We regard sound privacy practices as a key element of corporate governance and accountability. | N/A | ## Anti-bribery and anti-corruption | Statement or policy position | Description | Information to help understand our Group and its impact, policies, due diligence and outcomes | | :--- | :--- | :--- | | **Bribery and corruption** | The Barclays Group recognises that corruption can undermine the rule of law, democratic processes and basic human freedoms, impoverishing states and distorting free trade and competition. The Barclays Group policy statement reflects the statutory requirements applicable to the Barclays Group as derived from the EU-level legislation on combating public and private sector corruption as well as the UN and Organisation for Economic Co-operation and Development conventions on corruption. | N/A | | **Anti-money laundering and counter-terrorist financing** | The Barclays Group’s Financial Crime Policy is designed to ensure that we comply with UK, EU, and other applicable laws and regulations concerning anti-money laundering and counter-terrorist financing, and it takes into account guidance issued by bodies such as the Wolfsberg Group and the European Banking Authority. The Financial Crime Policy is also designed to ensure that all our businesses and legal entities have adequate systems and controls in place to mitigate the risk of the Barclays Group being used to facilitate money laundering and other forms of financial crime. | N/A | --- # Our people and culture The following sub-sections include a summary of the BBI’s specific items from the Barclays PLC Annual Report 2022. For full details, refer to Our people and culture section of the Barclays PLC Annual Report 2022. ### Colleagues The Bank uses a variety of tools to track and measure its strategic delivery, and collects both quantitative and qualitative information to develop a full picture of its performance. The measures of success include: | | 2022 | 2021 | | :--- | :--- | :--- | | Females at Managing Director and Director level (%) | 26% | 25% | | Colleague engagement (%)^a | 76% | 73% | | “it’s safe to speak up” (%) | 78% | 74% | | “I would recommend Barclays to people I know as a great place to work” (%)^a | 77% | 74% | *Note:* *a As part of our efforts to improve our measurement frameworks, we have transitioned to a new three question engagement model after collecting 4 years of concurrent data and running analysis to affirm the new model’s validity.* ### Helping Barclays to achieve strategic priorities Our people and our culture are our greatest assets. We are committed to making Barclays a great place to work, enabling colleagues to deliver strong results for our customers, clients, communities and each other. During 2022, we continued to embed the Barclays Mindset, helped colleagues to adapt to hybrid working, supported colleague wellbeing and made further progress against our diversity, equity and inclusion (‘DEI’) ambitions. Through our colleague listening survey, Your View, we saw improved scores across all our indices. In response to increases in living costs experienced by our colleagues we brought forward part of the 2023 pay increase for our most junior colleagues in Belgium, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain, awarding them €1,500 effective from 1 November 2022. In November, we also awarded junior colleagues in Germany a one-off payment of €2,000 as that approach, whilst having the same effect, was more appropriate under local rules. ### Our approach to diversity, equity and inclusion We launched our refreshed DEI vision and strategy to incorporate 'equity’ into how we talk about, and take action to progress, our DEI activities, including the launch of Employee Resource Groups. Our vision is to strengthen our diverse, equitable and inclusive culture, with a view to attracting and retaining the best talent, building high-performing teams which generate better outcomes for our customers and clients, whilst also meeting the expectations of our regulators, shareholders and other stakeholders. We have five strategic priorities: workforce diversity; inclusive and equitable culture; leadership accountability; data transparency and accountability and optimisation of external relationships. These priorities are underpinned by our guiding principles of accountability, transparency and engagement. These principles and priorities help us to deliver against our six core agendas - disability, gender, LGBT+, multicultural, multigenerational and socio-economic. ### Board diversity The Bank recognises and embraces the benefits of having a diverse Board, and sees increasing diversity at Board level as an essential element in reflecting its European footprint and maintaining a competitive advantage. The Board Diversity Policy sets out the approach to diversity on the Board of the Bank, and provides that the Nominations Committee will review and assess Board composition on behalf of the Board and will recommend the appointment of new Directors. In considering the composition, suitability of appointments and effectiveness of the Board, the Nominations Committee considers differences in the skills, regional and industry experience, social and ethnic background, nationality, race, gender, age and other distinctions between Directors, such as cognitive and personal strengths. In terms of gender, the Board’s current target is to ensure that the proportion of women on the Board is 33% by 2024. ### Talent now and for the future #### Talent Attraction – now and for the future Across 2022, demand for talent has remained high, alongside a greater focus from candidates seeking flexible working options and on wellness and wellbeing. In response, we have pursued opportunities to attract and recruit talent as quickly and efficiently as possible, by developing a specific Entity Employee Value Proposition increasing the number of recruiters to support our businesses and the launch of the Onboarding app across a number of countries to support a modern digital onboarding experience. #### Developing our colleagues We remain committed to our culture of lifelong learning, through a development proposition that supports colleagues at every stage of their career. The Barclays Learning Lab is our learning ecosystem. Consisting of Barclays-designed knowledge and skills modules, as well as modules from external specialists, it provides our colleagues with the development tools needed to support them in their current and future roles. Colleagues can access a wide range of workshops, split between colleague and people leader development. This is complemented by our digital content providers, whose content has been mapped against role-specific learning pathways, making it easy for colleagues to navigate development resources suitable for their needs. The Learning Lab also offers a selection of self-assessment tools, empowering colleagues to understand their strengths and development areas. These are supported by business-led solutions that encompass professional and technical resources encouraging colleagues to drive their own development. --- People leadership at Barclays is about helping others to achieve their potential. To equip our people leaders with the critical skills and behaviours to inspire, develop and support their teams today and into the future, we have refreshed our Management Unlocked programme. The programme provides participants with extensive digital content, as well as our Evolution programme, which supports new people leaders as they transition into leadership roles. ### Listening to our colleagues Listening to colleagues allows us to obtain insights into what we are doing well and areas where we need to focus our attention. Our bi-annual all-colleague Your View surveys measure colleague considerations across a breadth of topics including colleague engagement, organisational culture, including the Mindset and Values, wellbeing, inclusion and working practices and tools. The Your View survey is the primary mechanism for how we track engagement and monitor our culture, with the 2022 survey results indicating good progress for both engagement and cultural measures. Senior leaders continue to receive and review the results from these surveys to inform decisions. We maintain a strong and effective partnership with the Barclays Group European Forum, whom we brief on our strategy and progress to obtain feedback on how we can improve the colleague experience. ### Our policies Our people policies are designed to recruit the best people, provide equal opportunities and create an inclusive culture, in line with our Purpose, Values and Mindset, and in support of our long-term success. They also reflect relevant employment law, including the provisions of the Universal Declaration of Human Rights and the International Labour Organisation (‘ILO’) Declaration on Fundamental Principles and Rights at Work. We are committed to paying our people fairly and appropriately relative to their role, skills, experience and performance. This means our remuneration policies reward performance that is in line with our Purpose, Values and Mindset, as well as our risk expectations. We also encourage our people to benefit from Barclays’ performance by enrolling in our share ownership plans. --- # Climate and sustainability ## Barclays’ Climate Strategy In March 2020, the Barclays Group announced its ambition to be a net zero bank by 2050, becoming one of the first banks to do so. The Barclays Group has a three-part strategy to turn its net zero ambition into action. All entities in the Barclays Group, including BBI, are aligned to this three-part strategy. 1. **Achieving net zero operations** - the Barclays Group is working to reduce its Scope 1, Scope 2 and Scope 3 operational^a emissions consistent with a 1.5°C aligned pathway and counterbalance any residual emissions. The Barclays Group has made progress, having sourced 100% renewable electricity for its global real estate portfolio^b operations, and created a pathway to address its supply chain emissions. 2. **Reducing financed emissions** - the Barclays Group is committed to aligning its financing with the goals and timelines of the Paris Agreement, consistent with limiting the increase in global temperatures to 1.5°C. The Barclays Group has now set 2030 reduction targets across five of the highest-emitting sectors in the Barclays Group portfolio: Energy, Power, Cement, Steel and Automotive manufacturing. All of the Barclays Group target-setting includes the integration of 1.5°C aligned scenarios, such as the International Energy Agency Net Zero 2050 scenario in our financed emission targets, and including the upper end of ranges for certain sectors. 3. **Financing the transition** - the Barclays Group is helping to provide the green and sustainable finance required to transform the economies, customers and clients it serves. The Barclays Group’s surpassed its 2018 target to deliver £150bn of social and environmental financing by 2025, and is on track to meet its goal to deliver £100bn of green finance well ahead of 2030. After a strategic review of the Barclays Group’s capabilities, market demand and growth opportunities, the Barclays Group announced in December 2022 new targets to facilitate $1trn of Sustainable and Transition Financing between 2023 and the end of 2030, and to increase investment into global climate tech start-ups to £500m through Barclays’ Sustainable Impact Capital portfolio by the end of 2027. *Notes* *a Barclays Group defines Scope 3 operational emissions to include supply chain, waste, business travel and leased assets.* *b Global real estate portfolio includes offices, branches, campuses and data centres. See page 81 of the Barclays PLC Annual Report 2022 for full details.* The Barclays’ Group climate strategy is underpinned by the way it assesses and manages exposure to climate-related risk. Climate risk became a Principal risk at Barclays Group in 2022. The Barclays’ Group strategy will continue to evolve and adapt to reflect external factors affecting the shape and timing of the transition to a low-carbon economy, similar to those impacting clients’ transitions. Barclays’ Group keeps its policies, targets and progress under review in light of the rapidly changing external environment and the need to support governments and clients in delivering an orderly energy transition and providing energy security. The trajectory for clients’ transition to a low-carbon economy is influenced by a number of external factors, including market developments, technological advancement, the public policy environment, geopolitical developments and regional variations, behavioural change in society and the scale of change needed to adapt their business models. Client transition pathways will vary, even within the same sectors and geographies. In developing its climate strategy, the Barclays Group recognises the importance of supporting a just transition, considering the social risks and opportunities of the transition and seeking to ensure effective dialogue with affected stakeholders. Barclays Group is working to build an approach to a transition cognisant of the important dynamic between climate actions and social justice, while being mindful of the potential interconnectedness with biodiversity. Many highly carbon-intensive sectors require finance to transition. Restricting the flow of capital to these sectors could be harmful to the pace of the transition, limiting the real terms impact on global warming. However, the Barclays Group anticipates that companies which are unwilling to reduce or eliminate their emissions consistent with internationally accepted pathways may find it increasingly difficult to access financing, including through Barclays. More information on Barclays’ Group Climate Strategy can be found in the Barclays PLC 2022 Annual Report. ## Managing impacts in lending and financing At Barclays we recognise the importance of risk identification and management in the provision of financial services to our customers and clients. Our assessment of environmental and social risks informs our wholesale credit risk management and helps safeguard our reputation. This supports the longevity of the business and also enhances our ability to serve our clients and support them in improving their own sustainability practices and disclosures. ### Managing environmental and social risks Environmental and social risks are governed and managed through our ERMF, setting our strategic approach for risk management by defining standards, objectives and responsibilities for all areas of Barclays Group. The ERMF is complemented by a number of other frameworks, policies and standards, all of which are aligned to individual Principal Risks. --- Our Climate Change Statement sets out our approach in relation to our climate change ambition and to managing the impact of our climate-related activities, including setting restrictive policies in respect of certain sensitive energy sub-sectors (thermal coal mining, coal-fired power generation, mountain-top coal removal, oil sands, Arctic oil and gas and hydraulic fracturing (‘fracking’). Barclays Group has also established positions on Forestry and Agricultural Commodities, World Heritage and Ramsar Wetlands and in the Defence and Security sector. In addition, we have developed internal standards for each of these which reflects these positions in more detail. These standards, which sit under the management of Reputation risk in the ERMF, determine our approach to climate change and relevant sensitive sectors and are considered as part of our existing transaction origination, review and approval process. ### Enhanced due diligence Our standards include an enhanced due diligence approach for certain clients operating in energy sub-sectors covered by our Climate Change Statement (thermal coal mining, coal-fired power generation, mountain-top coal removal, oil sands, Arctic oil and gas projects and hydraulic fracturing ('fracking') and clients in-scope of our Forestry and Agricultural Commodities, World Heritage and Ramsar Wetlands and Defence and Security standards where a similar approach is taken. All in-scope clients in these sub-sectors must be assessed annually via a detailed due diligence questionnaire, which is used to evaluate their performance on a range of environmental and social issues, and may be supplemented by a review of client policies/procedures, further client engagement and adverse media checks as appropriate. This annual review either generates an Environmental and Social Impact (‘ESI’) risk rating (low, medium, high) or, in the case of Defence and Security, an assessment against risk appetite, which in turn determines whether further review and client engagement may be required throughout the year. Typically, high and certain medium ESI rated clients require further risk assessment prior to execution of transactions with those clients. ### Escalation and decision Where client relationships or transactions are assessed as higher-risk (high or medium ESI risk rating) or outside appetite (in the case of Defence and Security) following an enhanced due diligence review, they are then considered for escalation to the appropriate BBI business unit review committee (e.g. Transaction Review Committee) or for BBI clients in scope of our Climate Change standard, the Barclays Group Climate Transaction Review Committee (‘CTRC’) for consideration and a decision on whether to proceed if transaction related. Business unit review committees comprise Business management and representatives from the control functions, including Reputation risk, whereas the CTRC includes representation from the Barclays Group Executive Committee. Should the front office business team, the Sustainability and ESG team and / or Climate risk team believe the issues are sufficiently material, these clients/ relationships would be escalated to the Barclays Group Reputation Risk Committee and BBI Conduct and Reputation Committee for more senior consideration and decision. ### Monitoring As part of our management of environmental and social risks, we may require further client engagement in relation to the specific environmental and social risks that we have identified as part of our enhanced due diligence process. We have used this engagement as an opportunity to gain a more detailed understanding of the risks and challenges that the client is facing and to better understand any climate transition plan that they may have. ### Environmental credit risks Environmental risk is regarded as a credit risk driver, and is considered within our credit risk assessment process. The Environmental Risk team is responsible for advising on the environmental and climate-related credit risks to Barclays Group associated with particular transactions. Environmental risks in credit are governed under the Client Assessment and Aggregation, Environmental Risk and Nuclear Industry Risk standards. These standards are part of the overall ERMF. ### Training To support Climate Risk becoming a Principal Risk from January 2022, mandatory training was completed by colleagues in selected teams across Risk, Compliance, Internal Audit and Markets Post Trade. The training provided an overview of physical and transition risks to enable colleagues to identify, assess and manage Climate risk. Sustainability and ESG training (with detail on Barclays’ policies and approach to certain sensitive sub-sectors) was delivered to colleagues in selected teams across the Corporate and Investment Bank, Trade & Working Capital, Wholesale Onboarding, Finance, Public Policy and Corporate Responsibility, with 96% of those colleagues assigned the training in Barclays Europe having completed it. ### Our approach to nature and biodiversity Nature and biodiversity is a growing ESG focus for Barclays and the wider industry, given that nature and its ecosystem services fundamentally underpin economies and societies. Nature and biodiversity are also important to the sector due to their interlinkages with climate change. During 2022, nature and biodiversity loss continued to be recognised at a global scale. The Convention on Biological Diversity (‘CBD’) COP15 in December 2022 saw the agreement of the new Global Biodiversity Framework, which will be the framework for national and international action. For companies and financial institutions, the Taskforce on Nature-related Financial Disclosures (‘TNFD’) released its third draft iteration of the framework for organisations to assess and disclose on nature-related risk and opportunity. The Barclays Group and the Bank recognise the important role of the finance sector in stewarding responsible finance towards a nature-positive future. We continue to work to build an understanding of the ways in which our financing activities impact on nature, as well as the ways in which Barclays and its clients depend on nature. This includes engaging with industry groups and Barclays’ membership of the TNFD Forum. We also continue to review the ways in which our financing activities can help to facilitate a nature-positive future. --- We recognise interlinkages across environmental and social themes, in particular key crossovers with our approaches to climate change and human rights. Given these interdependencies it is important for banks to consider nature-related considerations alongside other ESG factors such as climate change and social considerations. **Case study: Barclays nature-linked financing - Cairn Homes plc Biodiversity Linked SLL** Barclays Corporate Banking Sustainable Product Group provided support to Cairn Homes plc (Cairn) in the selection of meaningful targets and indicators linked to certain sustainability performance targets. In July 2022, Cairn completed a refinancing of its €277.5m syndicate facility into a sustainability linked term loan (‘SLL’) and revolving credit facility (‘RCF’), one of the largest of its type arranged in the Irish homebuilding sector, with AIB, Bank of Ireland and BBI. The term loan and RCF interest rates are linked to Cairn meeting certain sustainability performance targets on biodiversity, decarbonisation and its people strategy. From a biodiversity perspective, the annual targets include a commitment to increase biodiversity net gain (‘BNG’) across Cairn’s new developments measured as a percentage of overall new homes commenced. BNG delivers measurable improvements for ecology by protecting, enhancing and creating habitats in association with development and Cairn's approach includes a development-specific biodiversity programme that replaces or improves the local biodiversity of each new Cairn development or otherwise contributes to the improvement of Ireland’s biodiversity. ### Nature-related risk in financing The Barclays Group and the Bank include financing restrictions that seek to address nature-related risk within its position statements on Forestry and Agricultural Commodities, World Heritage Sites and Ramsar Wetlands, and Climate Change. We continue to review and monitor the ways in which it can strengthen our approach. We have continued to develop our understanding and ability to evaluate nature-related risk in financing, building on the work started in 2021. This included working with an external expert on a materiality exercise to produce an initial portfolio heatmap to analyse nature-related risk by sector and exposure across the Barclays Group’s lending portfolio. This involved a qualitative review of sector impacts and dependencies across a number of key risk drivers representing both physical and transition risks, to determine where in the portfolio were the likely areas of highest risk. The Barclays Group have been part of a TNFD pilot group led by the United Nations Environment Programme Finance Initiative (‘UNEP-FI’) to test the draft TNFD Framework. As part of the pilot, we looked specifically at agriculture and food in Europe and the UK. We recognise the need for continuous improvement with regards to available data and technologies, in particular noting the complexity and challenge given the number of nature attributes and their associated metrics. We will therefore continue to support the develop of methodologies which seek to better evaluate risk impacts and dependencies at a portfolio level. For example, the Barclays Group have trialled an emerging modelling methodology in order to support participation with the UNEP-FI work, which draws upon a wide range of available data and also adopts assumptions where there are gaps. ### TNFD pilot with UNEP-FI - European Agriculture and Food In 2022, the TNFD published a draft version of its risk management and disclosure framework for organisations to report and act on evolving nature-related risks. UNEP-FI is piloting this framework with approximately 40 financial institutions - Barclays is participating in their pilot group focused on European agriculture and fisheries, which in the Barclays context means agriculture and food sectors. As part of the pilot programme, we worked with an external expert to test the draft TNFD framework, including the proposed risk assessment process (‘LEAP FI’), on our agriculture and food portfolio in Europe and the UK. This activity was led by the Barclays Group, but included the Bank’s clients. This involved assessing our clients’ locations in terms of production and sales and applying a number of biodiversity metrics to each location to determine where key impacts and risks may arise. A number of different 2030 scenarios were also used to stress the portfolio and individual counterparties, to see whether material financial impact could arise as a result of nature-related transition and physical risks. The results are currently being reviewed internally to assess how they could be used alongside existing climate risk procedures. For further details, see Barclays’ position statements on the Barclays ESG Resource Hub at: home.barclays/sustainability/esg-resource-hub/ --- # Climate and sustainability ## EU Taxonomy ### Overview In 2020, the EU Taxonomy Regulation^a (‘the Regulation’) was published with the objective of establishing a classification system for environmentally sustainable economic activities that is expected to play an important role in helping the EU scale up sustainable investment and implement the European Green Deal^b. The EU Taxonomy has six environmental objectives namely: - climate change mitigation; - climate change adaptation; - sustainable use and protection of water and marine resources; - transition to a circular economy; - pollution prevention and control; and - protection and restoration of biodiversity and ecosystems. The Regulation defines what can be considered as an environmentally sustainable economic activity. Article 8 of the Regulation requires entities subject to the obligation to publish non-financial information pursuant to Article 19a or Article 29a of the Non-Financial Reporting Directive (‘NFRD’)^c, such as the Bank, to disclose to the public how and to what extent their activities are associated with environmentally sustainable economic activities as defined under the Regulation. Pursuant to Article 8 of the Regulation^d, the Bank will need to disclose Key Performance Indicators (‘KPIs’) on the share of the balance sheet associated with sustainable activities. For the financial year ended 31 December 2022, the Bank is however only required by the Regulation to identify economic activities that are “taxonomy eligible” in the context of the environmental objectives of climate change mitigation and climate change adaptation. Practically, “taxonomy eligible activities” means economic activities within those sectors identified as most relevant to the climate objectives as set out in specific technical screening criteria. Technical screening criteria for the remaining four environmental objectives have not been published yet. Eligible activities will qualify for further screening in the future to determine whether they are taxonomy aligned, and thus considered environmentally sustainable. From the financial year ending 31 December 2023 onwards, the Bank will be required to report on its “taxonomy aligned activities” using the Green Asset Ratio (‘GAR’). Taxonomy alignment will show the proportion of taxonomy eligible activities that comply with the requirements set out in the Regulation i.e. that contribute substantially to one or more of the environmental objectives, that do not significantly harm any of the environmental objectives, that are carried out in compliance with certain minimum safeguards and that comply with specified technical screening criteria. The EU Taxonomy disclosures presented in this section are unaudited and have been prepared on a ‘best efforts’ basis using corporate disclosures, published financial reports and third party data providers. The EU Taxonomy related disclosures presented in this section have been made on the basis of the Bank’s understanding of the terms and concepts used under the Regulation and its implementing acts (as the case may be, as clarified by the European Commission). As the EU Taxonomy requirements and guidance develop and evolve over the coming years, and as the Bank continues to develop our industry data sourcing and methodologies, we will continue to review our disclosures in future periods. The table overleaf sets out the disclosure required to be made by the Bank in relation to the taxonomy eligibility of its economic activities in the context of the environmental objectives of climate change mitigation and climate change adaptation. --- | As at 31 December 2022 | KPIs | Description | | :--- | :--- | :--- | | Taxonomy eligible activities as a proportion of total covered assets^e | 5.3% | Economic activities with undertakings subject to NFRD, households and local governments that have been assessed as eligible in line with the Regulation, as a percentage of total covered assets. | | Taxonomy non-eligible activities as a proportion of total covered assets | 27.2% | Economic activities with undertakings subject to NFRD, households and local governments that have been assessed as non-eligible in line with the Regulation, as a percentage of total covered assets. | | Exposures to undertakings in scope of NFRD as a proportion of total covered assets | 32.5% | Covered assets that are exposures to entities subject to NFRD, as a percentage of total covered assets. | | Exposures to undertakings out of scope of NFRD as a proportion of total covered assets^f | 67.5% | Covered assets that are exposures to entities not subject to NFRD, as a percentage of total covered assets. Exposures that are not in scope of total covered assets are not included in this KPI. | | **Total** | **100%** | | | Derivatives as a proportion of total covered assets | 45.1% | Derivative financial instrument assets as a percentage of total covered assets. Derivative financial instrument assets are part of total covered assets, but out of scope for eligibility in line with the Regulation. | | Exposures to central banks, central governments and supranationals issuers as a proportion of total covered assets | 39.1% | Exposures to central banks, central governments and supranationals issuers, as a percentage of total covered assets. Selected regional and state governments are treated as central governments in line with the European Banking Authority (‘EBA’) list^g of regional governments, local authorities and public sector entities that may be treated as central governments. | | Trading book as a proportion of total covered assets | 8.6% | Trading book exposures as a percentage of total covered assets. Trading book assets comprises debt and equity securities and traded loans reported on the balance sheet as trading portfolio assets, and excludes reverse repurchase agreements at fair value separately reported on the balance sheet. | | On demand interbank loans as a proportion of total covered assets | 1.5% | Exposures to on-demand interbank loans, as a percentage of total covered assets. | | **Total covered assets^h** | **€89,712m** | **Total covered assets are defined by the EU Taxonomy FAQs as total on-balance sheet assets minus those assets excluded from the calculation of the GAR. Therefore, total assets as defined under IFRS as adopted by the EU, minus trading portfolio assets and exposures to central banks, central governments and supranationals issuers. Total covered assets of €89,712m represents 67.7% of total assets.** | *Notes* *a Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment.* *b [https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en](https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en)* *c Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, as amended from time to time, including by Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014.* *d As further specified in the Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation.* *e Taxonomy eligible activities as a proportion of total covered assets is 5.3%, of which: 5.3% relates to the environmental objective of climate change mitigation and 0% relates to the environmental objective of climate change adaptation.* *f The non-NFRD reported figure of 67.5% comprises 58.0% balances with non-NFRD entities and 9.5% balances with entities for which we have not yet been able to determine based on available information if the entity is in scope of NFRD.* *g [https://www.eba.europa.eu/eba-updates-lists-regional-governments-and-local-authorities-rglas-and-public-sector-entities-pses](https://www.eba.europa.eu/eba-updates-lists-regional-governments-and-local-authorities-rglas-and-public-sector-entities-pses)* *h Voluntary information provided to contextualise and support the readability of the mandatory regulatory disclosures.* The Bank’s taxonomy eligible activities as detailed above amounted to 5.3% of total covered assets as at 31 December 2022. Eligible activities comprise wholesale lending, of which 3.3% of the portfolio is assessed as taxonomy eligible, financial assets at fair value through profit and loss, of which 1.2% of the portfolio is assessed as taxonomy eligible and home loans, of which 100% is assessed as taxonomy eligible. Home loans refers to the Italy mortgage portfolio held on the balance sheet which is in the process of being run off. The remainder of loans and advances to customers relates to credit cards, unsecured loans and other retail lending which are not taxonomy eligible. --- ### Nuclear energy and fossil gas related disclosures Pursuant to the Complementary Climate Delegated Act,^i the Bank is required to provide information on the share of its balance sheet associated with certain energy nuclear and fossil gas economic activities^j. For the financial year ended 31 December 2022, the Bank is required to (i) indicate whether it carries out, funds or has exposures to certain general nuclear energy and/or fossil gas related activities and (ii) report on the taxonomy eligibility and non-eligibility of specific nuclear energy and fossil gas economic activities relevant to the environmental objectives of climate change mitigation and climate change adaptation. | Nuclear energy and fossil gas related disclosures | | | :--- | :--- | | **Nuclear energy related activities** | | | 1 The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle. | YES | | 2 The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies. | YES | | 3 The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades. | YES | | **Fossil gas related activities** | | | 4 The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. | YES | | 5 The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. | YES | | 6 The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels. | YES | In light of the EU Commission’s guidance on the Disclosures Delegated Act regarding the primary use of derivative financial instruments as mitigating risk rather than financing economic activities, the Bank has included counterparties with whom the Bank has exposures to derivative financial instruments in the table above but excluded those exposures in a) the ‘Taxonomy-eligible but not taxonomy-aligned economic activities’ table below; and b) rows 1 to 6 of the ‘Taxonomy non-eligible economic activities’ table below. The Bank will continue to review its approach as the EU Taxonomy regime develops and in the event further guidance is provided by the EU Commission. *Notes* *i Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities* *j Such activities are defined in the Complementary Climate Delegated Act by reference to specific sections of the annexes of the Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives* --- ### Taxonomy-eligible but not taxonomy-aligned economic activities^g | Economic activities | Amount and proportion of total covered assets | | | | | | | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Amount and proportion of taxonomy-eligible economic activity identified in the denominator of the applicable KPI: | CCM+CCA | | Climate change mitigation (CCM)^h | | Climate change adaptation (CCA)^h | | | | **€m** | **%** | **€m** | **%** | **€m** | **%** | | 1 Research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle (a) | — | — | — | — | — | — | | 2 Construction and safe operation of new nuclear installations to produce electricity or process heat using best-available technologies (b) | — | — | — | — | — | — | | 3 Modification of existing nuclear installations (c) | — | — | — | — | — | — | | 4 Construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels (d) | — | — | — | — | — | — | | 5 Construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels (e) | — | — | — | — | — | — | | 6 Construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels connected to efficient district heating and cooling (f) | — | — | — | — | — | — | | 7 Amount and proportion of other taxonomy-eligible but not taxonomy-aligned economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI | 4,763 | 5.3 | 4,763 | 5.3 | — | — | | 8 Total amount and proportion of taxonomy eligible but not taxonomy-aligned economic activities in the denominator of the applicable KPI | 4,763 | 5.3 | 4,763 | 5.3 | — | — | *a. Research, development, demonstration and deployment of innovative electricity generation facilities, licenced by Member States’ competent authorities in accordance with applicable national law, that produce energy from nuclear processes with minimal waste from the fuel cycle in the denominator of the applicable KPI. See Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *b. Amount and proportion of taxonomy-eligible economic activity identified in construction and safe operation of new nuclear installations for which the construction permit has been issued by 2045 by Member States’ competent authorities, in accordance with applicable national law, to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production (new nuclear installations or NNIs), as well as their safety upgrades in the denominator of the applicable KPI. See Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *c. Modification of existing nuclear installations for the purposes of extension, authorised by Member States’ competent authorities by 2040 in accordance with applicable national law, of the service time of safe operation of nuclear installations that produce electricity or heat from nuclear energy (‘nuclear power plants’ or ‘NPPs’) in the denominator of the applicable KPI. See Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *d. Amount and proportion of taxonomy-eligible economic activity identified in construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. This activity does not include electricity generation from the exclusive use of renewable non-fossil gaseous and liquid fuels and biogas and bio-liquid fuels in the denominator of the applicable KPI. See Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *e. Amount and proportion of taxonomy-eligible economic activity identified in construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. This activity does not include high-efficiency co-generation of heat/cool and power from the exclusive use of renewable non-fossil gaseous and liquid fuels and biogas and bio-liquid fuels in the denominator of the applicable KPI. See Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *f. Amount and proportion of taxonomy-eligible economic activity identified in Construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels connected to efficient district heating and cooling. This activity does not include production of heat/cool in an efficient district heating from the exclusive use of renewable non-fossil gaseous and liquid fuels and biogas and bio-liquid fuels in the denominator of the applicable KPI. See Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *g. Reporting on Taxonomy alignment is not required until FY2023. As a result, we have assumed taxonomy-aligned amounts to be zero above.* *h. In the absence of published data, taxonomy eligible lending above is assumed to be for CCM and not CCA.* --- ### Taxonomy non-eligible economic activities | Economic activities | Amount and proportion of total covered assets | | | :--- | :--- | :--- | | **Amount and proportion of economic activity identified in the denominator of the applicable KPI:** | **€m** | **%** | | 1 Research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle (a) | — | — | | 2 Construction and safe operation of new nuclear installations to produce electricity or process heat using best-available technologies (b) | — | — | | 3 Modification of existing nuclear installations (c) | — | — | | 4 Construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels (d) | — | — | | 5 Construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels (e) | — | — | | 6 Construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels connected to efficient district heating and cooling (f) | — | — | | 7 Amount and proportion of other taxonomy-non-eligible economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI | 24,425 | 27.2 | | 8 Total amount and proportion of taxonomy-non-eligible economic activities in the denominator of the applicable KPI | 24,425 | 27.2 | *a. Research, development, demonstration and deployment of innovative electricity generation facilities, licenced by Member States’ competent authorities in accordance with applicable national law, that produce energy from nuclear processes with minimal waste from the fuel cycle in the denominator of the applicable KPI. See Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *b. Amount and proportion of taxonomy-eligible economic activity identified in construction and safe operation of new nuclear installations for which the construction permit has been issued by 2045 by Member States’ competent authorities, in accordance with applicable national law, to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production (new nuclear installations or NNIs), as well as their safety upgrades in the denominator of the applicable KPI. See Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *c. Modification of existing nuclear installations for the purposes of extension, authorised by Member States’ competent authorities by 2040 in accordance with applicable national law, of the service time of safe operation of nuclear installations that produce electricity or heat from nuclear energy (‘nuclear power plants’ or ‘NPPs’) in the denominator of the applicable KPI. See Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *d. Amount and proportion of taxonomy-eligible economic activity identified in construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. This activity does not include electricity generation from the exclusive use of renewable non-fossil gaseous and liquid fuels and biogas and bio-liquid fuels in the denominator of the applicable KPI. See Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *e. Amount and proportion of taxonomy-eligible economic activity identified in construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. This activity does not include high-efficiency co-generation of heat/cool and power from the exclusive use of renewable non-fossil gaseous and liquid fuels and biogas and bio-liquid fuels in the denominator of the applicable KPI. See Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* *f. Amount and proportion of taxonomy-eligible economic activity identified in Construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels connected to efficient district heating and cooling. This activity does not include production of heat/cool in an efficient district heating from the exclusive use of renewable non-fossil gaseous and liquid fuels and biogas and bio-liquid fuels in the denominator of the applicable KPI. See Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 for full activity description.* --- ### Business strategies The Bank supports the objectives of the Regulation. Addressing climate change is an urgent and complex challenge but also an opportunity. It requires a fundamental transformation of the global economy. The financial sector has a critical role to play in supporting the transition to a low-carbon economy. In March 2020, the Barclays Group was one of the first banks to announce its ambition to be a net zero bank by 2050, across all of our direct and indirect emissions, and committed to aligning all financing activities with the goals and timelines of the Paris Agreement. Barclays Group has a three-part strategy to turn the net-zero ambition into action which is underpinned by the way it assesses and manages its exposure to climate-related risk. As the requirements of the EU Taxonomy are still being phased in and because data from non-financial corporates on taxonomy-aligned activities is very limited at the moment, the Bank is not in a position to fully utilise taxonomy alignment in product design and processes, or engagement with counterparties. However, the Bank is considering how to incorporate it into its ESG frameworks. Within Global Markets, we have developed an ESG framework for the governance, product construction and suitability assessment of our current and future ESG product suite. In line with the Sustainable Financing Disclosure Regulation^a and MiFID ESG regulations^b directive, we have defined a set of principles for an ESG Index utilised on our structured products, derivative and investment solutions businesses which broadly aligns with principles of the EU Taxonomy. We are also working with clients and partners to create products and services that align to the principles of the EU Taxonomy to address their sustainability preferences in structured products investments where applicable to the client. An overview of the Barclays Group approach and climate strategy can be found on page 21, and more information, including progress against targets, is set out in the Climate and Sustainability section of the Barclays PLC Annual Report 2022. *Notes* *a. Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector* *b. Commission Delegated Regulation (EU) 2021/1253 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms and Commission Delegated Directive (EU) 2021/1269 amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability factors into the product governance obligations* --- ## Important information / Disclaimers In preparing the climate and sustainability content within the BBI Annual Report, wherever it appears, we have: - Made a number of key judgements, estimations and assumptions where the processes and issues involved are complex. For example, in relation to disclosures relating to financed emissions, portfolio alignment, classification of environmental and social financing, operational emissions, and measurement of climate risk. - Used ESG and climate data, models and methodologies that we consider to be appropriate and suitable for these purposes as at the date on which they were deployed. However, these data, models and methodologies are subject to future risks and uncertainties and may change over time. They are not of the same standard as those available in the context of other financial information, nor subject to the same or equivalent disclosure standards, historical reference points, benchmarks or globally accepted accounting principles. There is an inability to rely on historical data as a strong indicator of future trajectories, in the case of climate change and its evolution. Outputs of models, processed data and methodologies will also be affected by underlying data quality which can be hard to assess or challenges in accessing data on a timely basis. - Continued (and will continue) to review and develop our approach to data, models and methodologies in line with market principles and standards as this subject area matures. The data, models and methodologies used and the judgements estimates or assumptions made are rapidly evolving and this may directly or indirectly affect the metrics, data points and targets contained in the climate and sustainability content within the Annual Report. Further development of accounting and/or reporting standards could impact (potentially materially) the performance metrics, data points and targets contained in this report. In future reports we may present some or all of the information for this reporting period using updated or more granular data or improved models, methodologies, market practices or standards or recalibrated performance against targets on the basis of updated data. Such re-presented, updated or recalibrated information may result in different outcomes than those included in this section of the Annual Report. It is important for readers and users of this report to be aware that direct like-for-like comparisons of each piece of information disclosed may not always be possible from one reporting period to another. ### Information provided in climate and sustainability disclosures What is important to our investors and stakeholders evolves over time and we aim to anticipate and respond to these changes. Disclosure expectations in relation to climate change and sustainability matters are particularly fast moving and differ in some ways from more traditional areas of reporting in the level of detail and forward-looking nature of the information involved and the consideration of impacts on the environment and other persons. We have adapted our approach in relation to disclosure of such matters. Our disclosures take into account the wider context relevant to these topics, including evolving stakeholder views, and longer time-frames for assessing potential risks and impacts having regard to international long term climate and nature-based policy goals. Our climate and sustainability-related disclosures are subject to more uncertainty than disclosures relating to other subjects given market challenges in relation to data reliability, consistency and timeliness, and in relation to the use of estimates and assumptions and the application and development of methodologies. These factors mean disclosures may be amended, updated, and recalculated in future as market practice and data quality and availability develops. --- # Risk review ## Contents | | Page | | :--- | :--- | | **Risk management strategy** | ▪ Enterprise Risk Management Framework (‘ERMF’) 32 | | | ▪ Segregation of duties – the “Three Lines of Defence” model 32 | | | ▪ Principal risks 32 | | | ▪ Risk appetite for the principal risks 32 | | | ▪ Risk committees 33 | | | ▪ Barclays’ risk culture 33 | | **Material existing and emerging risks** | ▪ Material existing and emerging risks potentially impacting more than one principal risk 34 | | | ▪ Climate risk 38 | | | ▪ Credit risk 39 | | | ▪ Market risk 40 | | | ▪ Treasury and capital risk 40 | | | ▪ Liquidity risk 40 | | | ▪ Capital risk 40 | | | ▪ Interest rate risk in the banking book 41 | | | ▪ Operational risk 41 | | | ▪ Model risk 43 | | | ▪ Conduct risk 44 | | | ▪ Reputation risk 45 | | | ▪ Legal risk and legal, competition and regulatory matters 45 | | **Principal risk management** | ▪ Climate risk management 46 | | | ▪ Credit risk management 51 | | | ▪ Market risk management 52 | | | ▪ Treasury and capital risk management 52 | | | ▪ Operational risk management 54 | | | ▪ Model risk management 55 | | | ▪ Conduct risk management 55 | | | ▪ Reputational risk management 56 | | | ▪ Legal risk management 56 | | **Risk performance** | ▪ Climate risk performance 57 | | | ▪ Credit risk performance 59 | | | ▪ Market risk performance 97 | | | ▪ Treasury and capital risk performance 99 | | | ▪ Operational risk performance 107 | | | ▪ Model risk performance 110 | | | ▪ Conduct risk performance 110 | | | ▪ Reputational risk performance 110 | | | ▪ Legal risk performance 110 | | **Supervision and regulation** | ▪ Supervision of the Bank 112 | | | ▪ Supervision in the EU 112 | | | ▪ Financial regulatory framework 112 | --- # Risk review ## Risk Management strategy ### RISK MANAGEMENT STRATEGY This section introduces the Bank’s approach to managing and identifying risks, and for fostering a sound risk culture. ### Enterprise Risk Management Framework (‘ERMF’) The ERMF outlines the highest level principles for risk management by setting out standards, objectives and key responsibilities of different groups of employees of the Bank. The Bank’s ERMF is adapted from and consistent with the Barclays Group ERMF as approved by the Barclays PLC Board on the recommendation of the Group Board Risk Committee and the Barclays Group Chief Risk Officer. This is then reviewed and formally adopted by the Bank’s Board at local legal entity level. The ERMF sets out: ▪ principal risks faced by the Bank which guides the organisation of risk management processes; ▪ risk appetite requirements: This helps define the level of risk we are willing to undertake in our business; ▪ risk management and segregation of duties: The ERMF defines a “Three Lines of Defence” model; and ▪ roles and responsibilities for risk management and governance. The ERMF is complemented by frameworks, policies and standards, which are mainly aligned to individual principal risks: ▪ frameworks cover high level principles guiding the management of principal risks, and set out details of which policies are needed, and high level governance arrangements; ▪ policies set out the control objectives and high level requirements to address the key principles articulated in their associated frameworks. Policies state ‘what’ those within scope are required to do; and ▪ standards set out the detail of the control requirements to ensure the control objectives set by the policies are met. ### Segregation of duties - the "Three Lines of Defence" model The ERMF sets out a clear lines of defence model. All colleagues are responsible for understanding and managing risks within the context of their individual roles and responsibilities, as set out below. ▪ The First line comprises of all employees engaged in the revenue generating and client facing areas of the Bank and all associated support functions, including Finance, Operations, Treasury, and Human Resources etc. The first line is responsible for identifying and managing the risks in which they are engaged in, operating within applicable limits and developing a control framework, and escalating risk events or issuers as appropriate. Employees in the first line have primary responsibility for their risks and their activities are subject to oversight from the relevant parts of the second and third lines. ▪ The Second line is comprised of the Risk and Compliance functions. The role of the second line is to establish the limits, rules and constraints, and the frameworks, policies and standards under which all activities shall be performed, consistent with the risk appetite of the Bank, and to oversee the performance of the firm against these limits, rules and constraints. Controls for first line activities will ordinarily be established by the control officers operating within the control framework of the firm. These will remain subject to oversight by the second line. ▪ The Third line of defence is Internal Audit, who are responsible for providing independent assurance over the effectiveness of governance, risk management and controls over current, systemic and evolving risks. ▪ The Legal function provides support to all areas of the Bank and is not formally part of any of the three lines of defence. The Legal function is responsible for the identification of all Legal and Regulatory Risks. Except in relation to the legal advice it provides or procures, it is subject to second line oversight with respect to its own operational and conduct risks, as well as with respect to the Legal and Regulatory Risks to which the bank is exposed. ### Principal risks The ERMF identifies nine principal risks namely: climate risk, credit risk, market risk, treasury and capital risk, operational risk, model risk, conduct risk, reputation risk and legal risk. Note that climate risk was added in quarter one 2022; see pages 46 to 56 for more information. Each of the principal risks is overseen by an accountable executive at the Barclays Group level who is responsible for overseeing and/or assigning responsibilities for the framework, policies and standards that set out associated responsibilities and expectations, and detail the related requirements around risk management on behalf of the BBI Chief Risk Officer. In addition, certain risks span across more than one principal risk. ### Risk appetite Risk appetite is defined as the level of risk which the Bank is prepared to accept in carrying out its activities. It provides a basis for ongoing dialogue between management and Board with respect to the Bank’s current and evolving risk profile, allowing strategic and financial decisions to be made on an informed basis. Risk appetite is approved by the Barclays PLC Board in aggregate and disseminated across legal entities and businesses, including the Bank. The Bank Board cannot approve a higher risk appetite than that determined by the Group Board without the approval of the Group Board but may choose to operate at a lower level of risk appetite than that approved by the Group Board. The Barclays Group’s total risk appetite and its allocation to the Bank are supported by limits to enable and control specific exposures and activities that have material concentration risk implications. --- # Risk review ## Risk Management strategy ### Risk Committees The Bank’s various risk committees consider risk matters relevant to their business, and escalate as required to the Bank’s Board Committees and the Bank’s Board. ```mermaid graph TD BBI[BBI Board] BLP[BBPLC Board Risk Committee] GRP[Group Risk Committee] BBRC[BBI Board Risk Committee] BBAC[BBI Board Audit Committee] BBCC[BBI Controls Committee] BRC[BBI Risk Committee] BBI --> BBRC BBI --> BBAC BBRC --> BRC BBRC --> BBCC BLP --> GRP GRP -.-> BRC style BBRC fill:#00a3e0,color:white style BBAC fill:#00a3e0,color:white style BRC fill:#00a3e0,color:white style BBCC fill:#00a3e0,color:white style BBI fill:#00a3e0,color:white style GRP fill:#003c5d,color:white style BLP fill:#003c5d,color:white linkStyle 4 stroke-width:2px,fill:none,stroke:black; ``` The Barclays Bank Ireland PLC Board receives regular information on the Bank’s risk profile, and has ultimate responsibility for risk appetite and capital plans, within the parameters set by the Barclays PLC Board. One of the responsibilities of the Bank’s Board is the approval of risk appetite allocated to the Bank. The Bank’s Board is also responsible for the adoption of the ERMF. Further, there are two Board-level committees which oversee the application of the ERMF and review and monitor risk across the Bank. These are: the Barclays Bank Ireland PLC Board Risk Committee and the Barclays Bank Ireland PLC Board Audit Committee. Additionally, the Barclays Bank Ireland PLC Board Remuneration Committee oversees pay practices focusing on aligning pay to performance along the criteria of “what and how”. - **The Barclays Bank Ireland PLC Board Risk Committee ('BRC’):** The BRC monitors the Bank’s risk profile against the agreed appetite. Where actual performance differs from expectations, the actions taken by management are reviewed to ascertain that the BRC is comfortable with them. The Bank’s CRO regularly presents a report to the BRC summarising developments in the risk environment and performance trends in the key portfolios. The BRC receives regular reports on risk methodologies, the effectiveness of the risk management framework, and the Bank’s risk profile, including the material issues affecting each business portfolio and forward risk trends. The committee also commissions in-depth analyses of significant risk topics, which are presented by the Bank’s CRO or senior risk managers in the businesses. - **The Barclays Bank Ireland PLC Board Audit Committee (‘BAC’):** The BAC receives regular reports on the effectiveness of internal control systems, on material control issues of significance and on accounting judgements (including impairment), and a semi-annual review of the adequacy of impairment allowances relative to the risk inherent in the portfolios, the business environment, and Barclays policies and methodologies. - **The Barclays Bank Ireland PLC Board Remuneration Committee (‘RemCo’):** The RemCo receives proposals on ex-ante and ex-post risk adjustments to variable remuneration based on risk management performance including events, issues and the wider risk profile. These inputs are considered in the setting of performance incentives. ### Barclays’ risk culture Risk culture can be defined as the “norms, attitudes and behaviours related to risk awareness, risk taking and risk management”. This is reflected in how the Bank identifies, escalates and manages risk matters. The Bank is committed to maintaining a robust risk culture in which: - management expect, model and reward the right behaviours from a risk and control perspective; and - colleagues identify, manage and escalate risk and control matters, and meet their responsibilities around risk management. The CEO works with the Executive Management to embed a strong risk culture within the Bank, with particular regard to the identification, escalation and management of risk matters, in accordance with the ERMF. Specifically, all employees regardless of their positions, functions or locations must play their part in the Bank’s risk management. Employees are required to be familiar with risk management policies which are relevant to their responsibilities, know how to escalate actual or potential risk issues, and have a role-appropriate level of awareness of the risk management process as defined by the ERMF. ### Our Code of Conduct – the Barclays Way Globally, all Barclays colleagues must attest to a familiarity with the “Barclays Way”, our Code of Conduct, and all frameworks, policies and standards applicable to their roles. The Code of Conduct outlines the Purpose, Values and Mindset which govern our ‘Barclays Way’ of working across our business globally. It constitutes a reference point covering all aspects of colleagues’ working relationships, and provides guidance on working with other Barclays employees, customers and clients, governments and regulators, business partners, suppliers, competitors and the broader community. See [home.barclays/sustainability/esg-resource-hub/statements-and-policy-positions/](home.barclays/sustainability/esg-resource-hub/statements-and-policy-positions/) for more details. --- # Risk review ## Material existing and emerging risks ### Material existing and emerging risks to the Bank’s future performance The Bank has identified a broad range of risks to which its businesses are exposed. Material risks are those to which senior management pay particular attention and which could cause the delivery of the Bank’s strategy, results of operations, financial condition and/or prospects to differ materially from expectations. Emerging risks are those which have unknown components, the impact of which could crystallise over a longer time period. In addition, certain other factors beyond the Bank’s control, including escalation of global conflicts, acts of terrorism, natural disasters, pandemics and similar events, although not detailed below, could have a similar impact on the Bank. ### Material existing and emerging risks potentially impacting more than one principal risk #### i) Business conditions, general economy and geopolitical issues The Bank’s operations are subject to changes in global and local economic and market conditions, as well as geopolitical developments, which may have a material impact on the Bank’s business, results of operations, financial condition and prospects. A deterioration in global or local economic and market conditions may result in (among other things): (i) deteriorating business, consumer or investor confidence and lower levels of investment and productivity growth, which in turn may lead to lower customer and client activity, including lower demand for borrowing; (ii) higher default rates, delinquencies, write-offs and impairment charges as borrowers struggle with their debt commitments; (iii) subdued asset prices, which may impact the value of any collateral held by the Bank and require the Bank and its customers to post additional collateral in order to satisfy margin calls; (iv) mark-to-market losses in trading portfolios resulting from changes in factors such as credit ratings, share prices and solvency of counterparties; and (v) revisions to calculated ECLs leading to increases in impairment allowances. In addition, the Bank’s ability to borrow from other financial institutions or raise funding from external investors may be affected by deteriorating economic conditions and market disruption. Geopolitical events can also cause financial instability and affect economic growth. In particular: - Global gross domestic product (‘GDP’) growth in 2022 was severely hampered by inflationary pressures resulting from; (a) the disruptive legacy of the COVID-19 pandemic on supply chains; (b) restricted labour markets and upward pressure on employment costs; and (c) escalating energy and food prices intensified by the Russian invasion of Ukraine. These pressures have led to on-going 'cost of living' pressures in much of the world, but particularly in Europe and the UK. - In response to persistent inflationary pressures, throughout 2022, central banks pursued policies of raising interest rates while also curtailing quantitative easing and in some cases commencing quantitative tightening. - Both the elevated inflationary environment and higher interest rates are likely to adversely affect economic growth globally in 2023, particularly in developed markets, with the possibility of elevated unemployment as a result, with potentially negative implications for the Bank's performance, including through increased impairment allowances. It remains possible that a resurgence in COVID-19 and/or restrictions on movement imposed locally to combat outbreaks or new strains, could exacerbate the expected slowdown in global economic performance. - In Europe and the UK, governments responded to escalating energy prices via short term subsidies for consumers and industry, in part funded by windfall taxes on targeted sectors. Revisions to these schemes during 2023 may cause upward pressure on household and corporate finances, which could result in higher impairment charges. - An escalation in geopolitical tensions or increased use of protectionist measures, such as in the Russian invasion of Ukraine, may have a material adverse effect on the Bank’s business. - Trading arrangements between the UK and EU, following the UK's exit from the EU, may also raise costs for customers trading with the EU, and possibly impact the Bank's operations. - Further, any trading disruption between the EU and the UK may have a significant impact on economic activity in the EU and the UK which, in turn, could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. Unstable economic conditions could result in (among other things): - a recession in one or more member states of the EEA in which it operates, with lower growth, higher unemployment and falling property prices, which could lead to increased impairments in relation to a number of the Bank’s portfolios (including, but not limited to, its mortgage portfolio, unsecured lending portfolio (including credit cards) and commercial real estate exposures); - increased market volatility (in particular in currencies and interest rates), which could impact the Bank’s trading book positions and affect the underlying value of assets in the banking book and securities held by the Bank for liquidity purposes; - a credit rating downgrade for the Bank (either directly or indirectly as a result of a downgrade in the Irish sovereign credit ratings) or its parent (Barclays Bank PLC), which could significantly increase the Bank’s cost of funding and/or reduce its access to funding, widen credit spreads and materially adversely affect the Bank’s interest margins and liquidity position; and/or - a widening of credit spreads more generally or reduced investor appetite for the Bank’s debt securities, which could negatively impact the Bank’s cost of and/or access to funding. --- #### ii) Risks relating to the impact of COVID-19 The COVID-19 pandemic has had a material adverse impact on businesses around the world and the economic and social environments in which they operate. Consequently, there are a number of factors associated with the COVID-19 pandemic and its impact on global economies that have had and could continue to have a material adverse effect on the profitability, capital and liquidity of the Bank. The COVID-19 pandemic caused disruption to the Bank’s customers, suppliers and staff. Most jurisdictions in which the Bank operates implemented severe restrictions on the movement of their respective populations, with a resultant significant impact on economic activity. It remains unclear how the COVID-19 pandemic will evolve through 2023 and the risks from further waves, new strains and/or vaccines proving ineffective cannot be ruled out and could result in the re-introduction of, or additional, restrictions placed on local populations. The Bank continues to monitor the situation. Macroeconomic expectations are that the effects of the COVID-19 pandemic will be long lasting with the level and speed of economic recovery still uncertain. To the extent that the residual impacts of the COVID-19 pandemic continue to adversely affect the global economy and/or the Bank, it may also have the effect of increasing the likelihood and/or magnitude of other risks described herein or may pose other risks which are not presently known to the Bank or not currently expected to be significant to the Bank’s profitability, capital and liquidity. Further waves or new strains of COVID-19 could impact the Bank’s ability to conduct business in the jurisdictions in which it operates through disruptions to infrastructure and supply chains, business processes and technology services provided by third parties, and unavailability of staff due to illness. These interruptions to business may be detrimental to customers (who may seek reimbursement from the Bank for costs and losses incurred as a result of such interruptions), and result in potential litigation costs (including regulatory fines, penalties and other sanctions), as well as reputational damage. Changes in macroeconomic variables such as GDP and unemployment have a significant impact on the modelling of ECLs by the Bank. The economic environment remains uncertain and future impairment charges may be subject to additional volatility (including from changes to macroeconomic variable forecasts) caused by further waves or new strains of the COVID-19 pandemic and related containment measures and the continued efficacy of vaccines and/or boosters, as well as the longer term effectiveness of central bank, government and other support measures. For further details on macroeconomic variables used in the calculation of ECLs, refer to the credit risk performance section. Any and all such events mentioned above could have a material adverse effect on the Bank’s business, results of operations, financial condition, prospects, liquidity, capital position and credit ratings (including potential credit rating agency changes of outlooks or ratings), as well as on the Bank’s customers, employees and suppliers. #### iii) The impact of interest rate changes on the Bank’s profitability Changes to interest rates are significant for the Bank, especially given the uncertainty as to the size and frequency of such changes. Interest rate rises result in higher funding costs but could positively impact the Bank’s profitability as corporate business net interest income increases due to margin decompression, as observed for the interest rate rises in 2022. However, increases in interest rates, if larger or more frequent than expected, could lead to generally weaker than expected growth, reduced business confidence, investment and higher unemployment. This, combined with the impact interest rate rises may have on the affordability of loan arrangements for borrowers (especially when combined with inflationary pressures), could cause stress in the Bank’s lending portfolio and underwriting activity with resultant higher credit losses driving an increased impairment charge which could have a material effect on the Bank’s business, results of operations, financial condition and prospects. Interest rate cuts may affect, and put pressure on, the Bank’s net interest margins (the difference between its lending income and borrowing costs) and could adversely affect the profitability and prospects of the Bank. #### iv) Competition in the banking and financial services industry The Bank operates in a highly competitive environment in which it must evolve and adapt to significant changes as a result of regulatory reform, technological advances, increased public scrutiny and prevailing economic conditions. The Bank expects that competition in the financial services industry will continue to be intense and may have a material adverse effect on the Bank’s future business, results of operations, financial condition and prospects. New competitors in the financial services industry continue to emerge. Technological advances and the growth of e-commerce have made it possible for non-banks to offer products and services that traditionally were banking products such as electronic securities trading, payments processing and online automated algorithmic-based investment advice. Furthermore, payments processing and other services could be significantly disrupted by technologies, such as blockchain (used in cryptocurrency systems) and ‘buy now pay later’ lending, both of which are currently subject to lower levels of regulatory oversight. Furthermore, the introduction of Central Bank Digital Currencies could potentially have significant impact on the banking system and the role of commercial banks within it by disrupting the current provision of banking products and services. This disruption could allow new competitors, some previously hindered by banking regulation (such as FinTechs), to provide customers with alternative access to financial services and increase disintermediation of banking services. New technologies and changing consumer behaviour have required and could require the Bank to incur additional cost to modify or adapt its products or make additional capital investments in its businesses to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies. --- Ongoing or increased competition and/or disintermediation of our services may put pressure on the pricing of the Bank’s products and services, which could reduce the Bank's revenues and profitability, or may cause the Bank to lose market share, particularly with respect to traditional banking products such as deposits and bank accounts. This competition may be on the basis of quality and variety of products and services offered, transaction execution, innovation, reputation and/or price. These factors may be exacerbated by further industry wide initiatives to address access to banking. The failure of any of the Bank’s businesses to meet the expectations of clients and customers, whether due to general market conditions, underperformance, a decision not to offer a particular product or service, branch closures, changes in client and customer expectations or other factors, could affect the Bank’s ability to attract or retain clients and customers. Any such impact could, in turn, reduce the Bank’s revenues. #### v) Regulatory change agenda and impact on business model The Bank’s businesses are subject to ongoing regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations in Ireland, the EU and the other markets in which it operates. Many regulatory changes relevant to the Bank’s business may have an effect beyond the country in which they are enacted, either because the Bank’s regulators deliberately enact regulation with extra-territorial impact or its global operations mean that the Bank is obliged to give effect to local laws and regulations on a wider basis. In recent years, regulators and governments have focused on reforming both the prudential regulation of the financial services industry and the ways in which the business of financial services is conducted. Measures taken include enhanced capital, liquidity and funding requirements, the separation or prohibition of certain activities by banks, changes in the operation of capital markets activities, the introduction of tax levies and transaction taxes, changes in compensation practices and more detailed requirements on how business is conducted. The governments and regulators in Ireland, the EU or elsewhere may intervene further in relation to areas of industry risk already identified, or in new areas, which could adversely affect the Bank. Current and anticipated areas of particular focus for the Bank’s regulators, where regulatory changes could have a material effect on the Bank’s business, financial condition, results of operations, prospects, capital position, and reputation, include, but are not limited to: - the increasing focus by regulators, international bodies, organisations and unions on how institutions conduct business, particularly with regard to ensuring the orderly and transparent operation of global financial markets; - the implementation of any conduct measures as a result of regulators’ focus on organisational culture, employee behaviour and whistleblowing; - the demise of certain benchmark interest rates and the transition to new risk-free reference rates (as discussed further under ‘vi) Impact of benchmark interest rate reforms on the Bank’ below); - reviews of regulatory frameworks applicable to the wholesale financial markets, including reforms and other changes to conduct of business, listing, securitisation and derivatives related requirements; - the focus globally on technology adoption and digital delivery, underpinned by customer protection, including the use of artificial intelligence and digital assets (data, identity and disclosures), financial technology risks, payments and related infrastructure, operational resilience, virtual currencies (including central bank digital currencies and global stable coins) and cybersecurity. This also includes the introduction of new and/or enhanced regulatory standards in these areas; - increasing regulatory expectations of firms around governance and risk management frameworks, particularly for management of climate change, diversity and inclusion and other ESG risks and enhanced ESG disclosure and reporting obligations; - the continued evolution of the UK’s regulatory framework following the UK's withdrawal from the EU, as if the regulatory regimes for EU and UK financial services diverge further, the provision of cross-border banking and investment services across the Bank may become more complex; - the implementation of the reforms to the Basel III package, which includes changes to the RWA approaches to credit risk, market risk, counterparty risk, operational risk, and credit valuation adjustments and the application of RWA floors and the leverage ratio; - the implementation of more stringent capital, liquidity and funding requirements; - the ongoing regulatory response to the COVID-19 pandemic and its implications for banks’ credit risk management and provisioning processes, capital adequacy and liquidity; - the incorporation of climate change within the global prudential framework, including the transition risks resulting from a shift to a low carbon economy and its financial effects; - increasing requirements to detail management accountability within the Bank (for example, the expected requirements of the Individual Accountability Framework in Ireland (including the Senior Executive Accountability Regime) and similar regimes elsewhere that are either in effect or under consideration/implementation), as well as requirements relating to executive remuneration; - changes in national or supra-national requirements regarding the ability to offshore or outsource the provision of services and resources or transfer material risk to financial services companies located in other countries, which impact the Bank’s ability to implement globally consistent and efficient operating models in line with the Barclays Group; - financial crime, fraud and market abuse standards and increasing expectations for related control frameworks, to ensure firms are adapting to new threats such as those arising from the COVID-19 pandemic, and are protecting customers from cyber-enabled crime; --- - the application and enforcement of economic sanctions including those with extra-territorial effect and those arising from geopolitical tensions; - requirements flowing from arrangements for the resolution strategy of the Barclays Group and its individual operating entities (including the Bank) that may have different effects in different countries; - the increasing regulatory expectations and requirements relating to various aspects of operational resilience, including an increasing focus on the response of institutions to operational disruptions; - continuing regulatory focus on data privacy, including the collection and use of personal data, and protection against loss and unauthorised or improper access; - the regulatory focus on policies and procedures for identifying and managing cybersecurity risks, cybersecurity governance and the corresponding disclosure and reporting obligations; and - continuing regulatory focus on the effectiveness of internal controls and risk management frameworks, as evidenced in regulatory fines and other measures imposed against the Barclays Group and other financial institutions. For further details, refer to the Bank’s supervision and regulation section. #### vi) Impact of benchmark interest rate reforms on the Bank Global regulators and central banks in the UK, the US and the EU have driven international efforts to reform key benchmark interest rates and indices, such as the London Interbank Offered Rate (‘LIBOR’) and the Euro Overnight Index Average (‘EONIA’), used to determine the amounts payable under a wide range of transactions and make them more reliable and robust. These benchmark reforms have resulted in significant changes to the methodology and operation of certain benchmarks and indices, the adoption of alternative “risk-free” reference rates (‘RFRs’), the discontinuation of certain reference rates (including LIBOR and EONIA), and the introduction of implementing legislation and regulations. Specifically, certain LIBOR tenors either ceased at the end of 2021 or became permanently unrepresentative. Furthermore, certain US dollar LIBOR tenors are to cease by the end of June 2023 and restrictions have been imposed on new use of US dollar LIBOR. Notwithstanding these developments, given the unpredictable consequences of benchmark reform, any of these developments could have an adverse impact on market participants, including the Bank, in respect of any financial instruments linked to, or referencing, any of these benchmark interest rates. Uncertainty associated with such potential changes, including the availability and/or suitability of alternative RFRs, the participation of customers and third-party market participants in the transition process, challenges with respect to required documentation changes, and impact of legislation to deal with certain legacy contracts that cannot convert into or add fall-back RFRs before cessation of the benchmark they reference, may adversely affect a broad range of transactions (including any securities, loans and derivatives which use LIBOR or EONIA or any other affected benchmark to determine the interest payable which are included in the Bank’s financial assets and liabilities) that use these reference rates and indices, and present a number of risks for the Bank, including, but not limited to: - **Conduct risk:** in undertaking actions to transition away from using certain reference rates (such as LIBOR and EONIA) to new alternative RFRs, the Bank faces conduct risks. These may lead to customer complaints, regulatory sanctions or reputational impact if the Bank is considered to be (among other things): (i) undertaking market activities that are manipulative or create a false or misleading impression; (ii) misusing sensitive information or not identifying or appropriately managing or mitigating conflicts of interest; (iii) providing customers with inadequate advice, misleading information, unsuitable products or unacceptable service; (iv) not taking a consistent approach to remediation for customers in similar circumstances; (v) unduly delaying the communication and migration activities in relation to client exposure, leaving them insufficient time to prepare; or (vi) colluding or inappropriately sharing information with competitors. - **Litigation risk:** the Bank may face legal proceedings, regulatory investigations and/or other actions or proceedings regarding (among other things): (i) the conduct risks identified above, (ii) the interpretation and enforceability of provisions in LIBOR-based contracts and securities, and (iii) the Bank’s preparation and readiness for the replacement of LIBOR with alternative RFRs. - **Financial risk:** the valuation of certain of the Bank’s financial assets and liabilities may change. Moreover, transitioning to alternative RFRs may impact the Bank’s ability to calculate and model amounts receivable by them on certain financial assets and determine the amounts payable on certain financial liabilities (such as debt securities issued by them) because certain alternative RFRs (such as the Swiss Average Rate Overnight and the euro short-term rate) are look-back rates whereas term rates (such as LIBOR and EONIA) allow borrowers to calculate at the start of any interest period exactly how much is payable at the end of such interest period. This may have a material adverse effect on the Bank’s cash flows. - **Pricing risk:** changes to existing reference rates and indices, discontinuation of any reference rate or indices and transition to alternative RFRs may impact the pricing mechanisms used by the Bank on certain transactions. - **Operational risk:** changes to existing reference rates and indices, discontinuation of any reference rate or index and transition to alternative RFRs may require changes to the Bank’s IT systems, trade reporting infrastructure, operational processes and controls. In addition, if any reference rate or index (such as LIBOR or EONIA) is no longer available to calculate amounts payable, the Bank may incur expenses in amending documentation for new and existing transactions and/or effecting the transition from the original reference rate or index to a new reference rate or index. --- - **Accounting risk:** an inability to apply hedge accounting in accordance with IAS 39 could lead to increased volatility in the Bank’s financial results and performance. Any of these factors may have a material adverse effect on the Bank’s business, results of operations, financial condition, prospects and reputation. For further details on the impacts of benchmark interest rate reforms on the Bank, refer to Note 41. #### vii) Change delivery and execution risks The Bank will need to adapt and/or transform the way it conducts business in response to changing customer behaviour and needs, technological developments, regulatory expectations, increased competition and cost management initiatives. Furthermore, changes to the Bank’s business model might also arise from the ECB’s ongoing cross industry review of how international banking groups (such as Barclays) manage their EU businesses, including through the ECB’s cross industry desk mapping review. Accordingly, effective management of transformation projects is required to successfully deliver the Bank's strategic priorities, involving delivering both on externally driven programmes, as well as key business initiatives to deliver revenue growth, product enhancement and operational efficiency outcomes. The magnitude, complexity and, at times, concurrent demands of the projects required to meet these priorities can result in heightened execution risk. The ability to execute the Bank’s strategy may be limited by operational capacity and the increasing complexity of the regulatory environment in which the Bank operates. In addition, whilst the Bank continues to pursue cost management initiatives, they may not be as effective as expected and cost saving targets may not be met. The failure to successfully deliver or achieve any of the expected benefits of these strategic initiatives and/or the failure to meet customer and stakeholder expectations could have a material adverse effect on the Bank’s business, results of operations, financial condition, customer outcomes, prospects and reputation. ### Material existing and emerging risks impacting individual principal risks #### i) Climate risk The risks associated with climate change are subject to rapidly increasing societal, regulatory and political focus, both in the EU and internationally. In line with regulatory expectations and requirements, the Barclays Group has embedded climate risk within the ERMF, to address the financial and operational risks resulting from both: (i) the physical risk of climate change; and (ii) the risk from the transition to a low-carbon economy. Climate risk is considered to be a driver of financial and operational risks. Physical risks from climate change arise from a number of factors and relate to specific weather events (acute) and longer-term shifts in the climate (chronic). The nature and timing of extreme weather events are uncertain but they are increasing in frequency and in the potential severity of economic impact. The potential impact on the economy includes, but is not limited to, lower GDP growth, higher unemployment, shortage of raw materials and products due to supply chain disruptions and significant changes in asset prices and profitability of industries. Damage to properties and operations of borrowers could decrease production capacity, increase operating costs, impair asset values and the creditworthiness of customers leading to increased default rates, delinquencies, write-offs and impairment charges in the Bank’s portfolios. In addition, the Bank’s premises and resilience may also suffer physical damage due to weather events leading to increased costs for the Bank. As the economy transitions to a low-carbon economy, financial institutions such as the Bank may face significant and rapid developments in stakeholder expectations, policy, law and regulation which could impact the lending activities the Bank undertakes, as well as the risks associated with its lending portfolios, and the value of the Bank’s assets. As new policies and regulations are enforced, market sentiment and societal preferences change and new technologies emerge, this may result in increased costs and reduced demand of product and services of a company, early retirement and impairment of assets, decreased revenue and profitability for the Bank’s customers. This in turn may impact creditworthiness of customers and their ability to repay loans. Additionally, the Bank may face greater scrutiny of the type of business it conducts, adverse media coverage and reputational damage, which may in turn impact customer demand for the Bank's products, returns on certain business activities and the value of certain assets and trading positions resulting in impairment charges. In addition, the impacts of physical and transition climate risks can lead to second order connected risks, which have the potential to affect the Bank’s retail and wholesale portfolios. The impacts of climate change may increase losses for those sectors sensitive to the effects of physical and transition risks. Any subsequent increase in defaults and rising unemployment could create recessionary pressures, which may lead to wider deterioration in the creditworthiness of the Bank’s clients, higher ECLs, and increased charge-offs and defaults among retail customers. Please refer to pages 47 and 48 for a summary of the nature, drivers and potential impacts of physical and transition risks. In quarter one 2022, climate risk became one of the principal risks within the Bank’s ERMF. Failure to adequately embed the financial and operational risks associated with climate change into the risk framework to appropriately measure, manage and disclose the various financial and operational risks it faces as a result of climate change or failure to adapt the Bank’s strategy and business model to the changing regulatory requirements and market expectations on a timely basis, may have a material and adverse impact on the Bank’s level of business growth, competitiveness, profitability, capital requirements, cost of funding, and financial condition. In March 2020, the Barclays Group announced its ambition to become a net zero bank by 2050 and its commitment to align all of its financing activities with the goals and timelines of the Paris Agreement. In order to reach these ambitions and targets or any other climate-related ambitions or targets the Barclays Group may commit to in future, the Bank will need to continue to incorporate climate --- considerations into its strategy, business model, the products and services it provides to customers and its financial and non-financial risk management processes (including processes to measure and manage the various financial and non-financial risks the Bank faces as a result of climate change).The Bank also needs to ensure that its strategy and business model adapt to changing, and sometimes conflicting national and international standards, industry and scientific practices, regulatory requirements and market expectations regarding climate change, which remain under continuous development and vary between regions, sometimes to a significant extent. There can be no assurance that these standards, practices, requirements and expectations will not change in a manner that substantially increases the cost or effort for the Bank to achieve such ambitions and targets. In addition, the Barclays Group’s ambitions and targets may prove more challenging to achieve due to changing circumstances and potentially volatile external factors which are beyond our control, including geopolitical issues, energy security, energy poverty and other considerations such as just transition to a low carbon economy. This may be exacerbated if the Barclays Group or the Bank chooses or is required to accelerate its climate-related ambitions or targets as a result of regulatory developments or stakeholder expectations. Achieving the Barclays Group’s climate-related ambitions and targets will also depend on a number of factors outside the Bank’s control, including reliable forecast of hazards from the physical climate models, availability of data and models to measure and assess the climate impact of the Bank’s customers, advancements of low-carbon technologies and supportive public policies in the markets where the Bank operates. If these external factors and other changes do not occur, or do not occur on a timely basis, the Barclays Group may fail to achieve its climate-related ambitions and targets and this could have a material adverse effect on the Bank’s business, results of operations, financial condition, prospects and reputation. For further details on the Bank’s approach to climate change, refer to the climate risk management section. #### ii) Credit risk Credit risk is the risk of loss to the Bank from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the Bank, including the whole and timely payment of principal, interest, collateral and other receivables. Credit risk is impacted by a number of factors outside the Bank’s control, including wider economic conditions. **a) Impairment** Impairment is calculated in line with the requirements of IFRS 9 which results in recognition of loss allowances, based on ECLs, on a forward-looking basis using a broad scope of financial metrics. Measurement involves complex judgement and impairment charges are potentially volatile and may not successfully predict actual credit losses, particularly under stressed conditions. Any failure by the Bank to accurately estimate credit losses through ECLs could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. For further details, refer to Note 8. **b) Specific portfolios, sectors and concentrations** The Bank is subject to risks arising from changes in credit quality and recovery rates for loans and advances due from borrowers and counterparties across all portfolios. Any deterioration in the credit quality could lead to lower recoverability from loans and advances and higher impairment charges. Accordingly, any of the following areas of uncertainty could have a material adverse impact on the Bank’s portfolio which could have a material impact on the Bank’s performance: - **Consumer affordability:** remains a key area of focus, particularly in unsecured lending as the 'cost of living' pressures grow. Macroeconomic factors, such as unemployment, higher interest rates or broader inflationary pressures, that impact a customer’s ability to service debt payments could lead to increased arrears in both unsecured and secured products. The Bank is exposed to the adverse credit performance of unsecured products, particularly in Germany, through the Barclays Consumer Bank Europe business. - **Italian mortgage and wholesale exposure:** the Bank is exposed to a decline in the Italian economic environment through a mortgage portfolio in run-off and positions to wholesale customers. During 2022, Italian economic growth has been severely impacted by high energy costs, inflation and rising interest rates, making it more difficult for the new administration to manage the high level of public debt. Failure by the government to meet the EU's requirements could put at risk further payments from the EU's €750bn post-pandemic recovery fund, potentially delaying economic recovery which, in turn, could materially adversely affect the Bank’s results of operations including, but not limited to, increased credit losses and higher impairment charges. - **Leveraged finance underwriting:** the Bank takes on non-investment grade underwriting exposure, including single name risk. The Bank is exposed to credit events and market volatility during the underwriting period which may result in losses for the Bank, or increased capital requirements should there be a need to hold the exposure for an extended period. - **Air travel:** the sector struggled to resource for the recovery in lower margin (tourist) demand for air travel evidenced in 2022 (after the drop in demand during the pandemic), and to adjust to the structural decline in higher margin business travel. While this transition plays out, there remains a heightened risk to the revenue streams of the Bank’s clients and, consequentially, their ability to service debt obligations. Increasing concerns about the impact of air travel on climate change will also influence consumer behaviour, representing additional risks for the sector. The Bank also has large individual exposures to single name counterparties (such as brokers, central clearing houses, dealers, banks, mutual funds and other institutional clients) both in its lending and trading activities, including derivative trades. The default of one such counterparty could cause contagion across clients involved in similar activities and/or adversely impact asset values should margin calls necessitate rapid asset disposals by that counterparty to raise liquidity. In addition, where such counterparty risk has been mitigated by taking collateral, credit risk may remain high if the collateral held cannot be monetised, or has to be liquidated at prices which are insufficient to recover the full amount of the loan or derivative exposure. Any such defaults could have a material adverse effect on the Bank’s results due to, for example, increased credit losses and higher impairment charges. --- For further details on the Bank’s approach to credit risk, refer to the credit risk management and credit risk performance sections. #### iii) Market risk Market risk is the risk of loss arising from potential adverse changes in the value of the Bank’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations. Economic and financial market uncertainties remain elevated, driven by elevated inflation and tightening monetary policy - both of which are exacerbated by the Russian invasion of Ukraine and supply-chain disruptions caused by the COVID-19 pandemic. A disruptive adjustment to higher interest rate levels and deteriorating trade and geopolitical tensions are some of the factors that could heighten market risks for the Bank’s portfolios. In addition, the Bank’s trading business is generally exposed to a prolonged period of elevated asset price volatility, particularly if it adversely affects market liquidity. Such a scenario could impact the Bank’s ability to execute client trades and may also result in lower client flow-driven income and/or market-based losses on its existing portfolio of market risks. These can include higher hedging costs from rebalancing risks that need to be managed dynamically as market levels and their associated volatilities change. Changes in market conditions could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. For further details on the Bank’s approach to market risk, refer to the market risk management and market risk performance sections. #### iv) Treasury and capital risk There are three primary types of treasury and capital risk faced by the Bank: **a) Liquidity risk** Liquidity risk is the risk that the Bank is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets. This could cause the Bank to fail to meet regulatory and/or internal liquidity requirements, make repayments of principal or interest as they fall due or support day-to-day business activities. Key liquidity risks that the Bank faces include: - **Stability of the Bank’s deposit funding profile:** deposits which are payable on demand or at short notice could be adversely affected by the Bank failing to preserve the current level of customer and investor confidence or as a result of competition in the banking industry. - **Ongoing access to wholesale funding:** the Bank regularly accesses the money and capital markets to provide short-term and long-term unsecured and secured funding to support its operations. A loss of counterparty confidence, or adverse market conditions (such as the recent rises in interest rates), could lead to a reduction in the tenor, or an increase in the costs of the Bank’s unsecured and secured wholesale funding or affect the Bank’s access to such funding. - **Impacts of market volatility:** adverse market conditions, with increased volatility in asset prices, could: (i) negatively impact the Bank’s liquidity position through increased derivative margin requirements and/or wider haircuts when monetising liquidity pool securities; and (ii) make it more difficult for the Bank to execute secured financing transactions. - **Intraday liquidity usage:** increased collateral requirements for payments and securities settlement systems could negatively impact the Bank’s liquidity position, as cash and liquid assets required for intraday purposes are unavailable to meet other outflows. - **Off-balance sheet commitments:** deterioration in economic and market conditions could cause customers to draw on off-balance sheet commitments provided to them, for example, revolving credit facilities, negatively affecting the Bank’s liquidity position. - **Credit rating changes and impact on funding costs:** any reductions in a credit rating (in particular, any downgrade below investment grade) may affect the Bank’s access to the money or capital markets and/or terms on which the Bank is able to obtain market funding (for example, this could lead to increased costs of funding and wider credit spreads, the triggering of additional collateral or other requirements in derivative contracts and other secured funding arrangements, or limits on the range of counterparties who are willing to enter into transactions with the Bank). Any of these factors could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. **b) Capital risk** Capital risk is the risk that the Bank has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments and stressed conditions (both actual and as defined for internal planning or regulatory stress testing purposes). This also includes the risk from the Bank’s defined benefit pension plans. Key capital risks that the Bank faces include: - **Failure to meet prudential capital requirements:** this could lead to the Bank being unable to support some or all of its business activities, a failure to pass regulatory stress tests, increased cost of funding due to deterioration in investor appetite or credit ratings, restrictions on distributions and/or the need to take additional measures to strengthen the Bank’s capital or leverage position. - **Adverse changes in FX rates impacting capital ratios:** the Bank has risk weighted assets and leverage exposures denominated in foreign currencies. Changes in foreign currency exchange rates may adversely impact the Euro equivalent value of these items. As a result, the --- Bank’s regulatory capital ratios are sensitive to foreign currency movements. Failure to appropriately manage the Bank’s balance sheet to take account of foreign currency movements could result in an adverse impact on the Bank’s regulatory capital and leverage ratios. - **Adverse movements in the pension fund:** adverse movements in pension assets and liabilities for defined benefit pension schemes could result in deficits on a technical provision and/or IAS 19 accounting basis. This could lead to the Bank making additional contributions to its defined benefit pension plans and/or a deterioration in its capital position. The market value of pension fund assets might decline; or investment returns might reduce. Under IAS 19, the liabilities discount rate is derived from the yields of high quality corporate bonds. Therefore, the valuation of the Bank’s defined benefit pension schemes would be adversely affected by a prolonged fall in the discount rate due to a persistent low interest rate and/or credit spread environment. Inflation is another significant risk driver to the pension fund as the liabilities are adversely impacted by an increase in long-term inflation expectations. **c) Interest rate risk in the banking book** Interest rate risk in the banking book is the risk that the Bank is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. The Bank’s hedging programmes for interest rate risk in the banking book rely on behavioural assumptions and, as a result, the effectiveness of the hedging strategy cannot be guaranteed. A potential mismatch in the balance or duration of the hedging assumptions could lead to earnings deterioration if there are interest rate movements which are not adequately hedged. A decline in interest rates in Euro and other G3 currencies may also compress net interest margin on banking book liabilities. In addition, the Bank’s liquid asset buffer is exposed to income reduction due to adverse movements in market rates which may have a material adverse effect on the capital position of the Bank. For further details on the Bank’s approach to treasury and capital risk, refer to the treasury and capital risk management and treasury and capital risk performance sections. #### v) Operational risk Operational risk is the risk of loss to the Bank from inadequate or failed processes or systems, human factors or due to external events where the root cause is not due to credit or market risks. Examples include: **a) Operational resilience** The Bank functions in a highly competitive market, with customers and clients that expect consistent and smooth business processes. The loss of or disruption to business processing is a material inherent risk within the Bank and across the financial services industry, whether arising through failures in the Bank’s technology systems or availability of personnel or services supplied by the Bank’s outsourcing partners within the Barclays Group and by third parties. Failure to build resilience and recovery capabilities into business processes or into the services on which the Bank’s business processes depend, may result in significant customer detriment, costs to reimburse losses incurred by the Bank’s customers, and reputational damage. **b) Cyberattacks** Cyberattacks continue to be a global threat that is inherent across all industries, with the number and severity of attacks continuing to rise. The financial sector remains a primary target for cybercriminals, hostile nation states, opportunists and hacktivists. The Bank, like other financial institutions, experiences numerous attempts to compromise its cybersecurity protections. The Bank dedicates significant resources to reducing cybersecurity risks, but it cannot provide absolute security against cyberattacks. Malicious actors are increasingly sophisticated in their methods, tactics, techniques, and procedures, seeking to steal money, gain unauthorised access to, destroy or manipulate data, and disrupt operations, and some of their attacks may not be recognised or discovered until launched or after initial entry into the environment, such as novel or zero-day attacks that are launched before patches are available and defences can be readied. Malicious actors are also increasingly developing methods to avoid prevention, detection and alerting capabilities, including employing counter-forensic tactics making response activities more difficult. Cyberattacks can originate from a wide variety of sources and target the Bank in numerous ways, including attacks on networks, systems, applications or devices used by the Bank or parties such as service providers and other suppliers, counterparties, employees, contractors, customers or clients, presenting the Bank with a vast and complex defence perimeter. Moreover, the Bank does not have direct control over the cybersecurity of the systems of its clients, customers, counterparties and third-party service providers and suppliers, limiting the Bank’s ability to effectively protect and defend against certain threats. Some of the Bank’s third-party service providers and suppliers have experienced successful attempts to compromise their cybersecurity. These included ransomware attacks that disrupted the service providers’ or suppliers’ operations and, in some cases, had an impact on the Bank’s operations. Such cyberattacks are likely to continue. A failure in the Bank’s adherence to its cybersecurity policies, procedures or controls, employee malfeasance, and human, governance or technological error could also compromise the Bank’s ability to successfully prevent and defend against cyberattacks. Furthermore, certain legacy technologies that are at or approaching end-of-life may not be able to maintain acceptable levels of security. The Bank has experienced cybersecurity incidents and near-misses in the past, and it is inevitable that additional incidents will occur in the future. Cybersecurity risks are expected to increase, due to factors such as the increasing demand across the industry and customer expectations for continued expansion of services delivered over the Internet; increasing reliance on Internet-based products, applications and data storage; and changes in ways of working by the Bank’s employees, contractors, and third party service providers and suppliers and their subcontractors as a long-term consequence of the COVID-19 pandemic. Bad actors have taken advantage of remote working practices and modified customer behaviours, exploiting the situation in novel ways that may elude defences. Additionally, geopolitical turmoil may serve to increase the risk of a cyberattack that could impact Barclays directly, or indirectly through its critical suppliers or national infrastructure. In 2022, the Bank faced a heightened risk of cyberattack as a result of the Russian invasion of Ukraine. --- Common types of cyberattacks include deployment of malware to obtain covert access to systems and data; ransomware attacks that render systems and data unavailable through encryption and attempts to leverage business interruption or stolen data for extortion; novel or zero-day exploits; denial of service and distributed denial of service (‘DDoS’) attacks; infiltration via business email compromise; social engineering, including phishing, vishing and smishing; automated attacks using botnets; third-party customer, vendor, service provider and supplier account take-over; malicious activity facilitated by an insider; and credential validation or stuffing attacks using login and password pairs from unrelated breaches. A successful cyberattack of any type has the potential to cause serious harm to the Bank or its clients and customers, including exposure to potential contractual liability, claims, litigation, regulatory or other government investigation or action, loss of existing or potential customers, damage to the Bank’s brand and reputation, and other financial loss. The impact of a successful cyberattack also is likely to include operational consequences (such as unavailability of services, networks, systems, devices or data) remediation of which could come at significant cost. Regulators worldwide continue to recognise cybersecurity as an increasing systemic risk to the financial sector and have highlighted the need for financial institutions to improve their monitoring and control of, and resilience to, cyberattacks. A successful cyberattack may, therefore, result in significant regulatory fines on the Bank. In addition, any new regulatory measures introduced to mitigate these risks are likely to result in increased technology and compliance costs for the Bank. For further details on the Bank’s approach to cyberattacks, see the operational risk performance section. For further details on cybersecurity regulation applicable to the Bank, refer to the Supervision and regulation section. **c) New and emergent technology** Technology is fundamental to the Bank’s business and the financial services industry. Technological advancements present opportunities to develop new and innovative ways of doing business across the Bank, with new solutions being developed both in-house and in association with third-party companies. For example, payment services and securities, futures and options trading are increasingly occurring electronically, both on the Bank’s own systems and through other alternative systems, and becoming automated. Whilst increased use of electronic payment and trading systems and direct electronic access to trading markets could significantly reduce the Bank’s cost base, it may, conversely, reduce the commissions, fees and margins made by the Bank on these transactions which could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. Introducing new forms of technology, however, has the potential to increase inherent risk. Failure to evaluate, actively manage and closely monitor risk during all phases of business development and implementation could introduce new vulnerabilities and security flaws and have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. **d) External fraud** The nature of fraud is wide-ranging and continues to evolve, as criminals seek opportunities to target the Bank’s business activities and exploit changes in customer behaviour and product and channel use (such as the increased use of digital products and enhanced online services) or exploit new products. Fraud attacks can be very sophisticated and are often orchestrated by organised crime groups who use various techniques to target customers and clients directly to obtain confidential or personal information that can be used to commit fraud. The impact from fraud can lead to customer detriment, financial losses (including the reimbursement of losses incurred by customers), loss of business, missed business opportunities and reputational damage, all of which could have a material adverse impact on the Bank’s business, results of operations, financial condition and prospects. **e) Data management and information protection** The Bank holds and processes large volumes of data, including personal information, financial data and other confidential information, and the Bank’s businesses are subject to complex and evolving laws and regulations governing the privacy and protection of data, including Regulation (EU) 2016/679 (General Data Protection Regulation as it applies in the EU and the UK). This data could relate to: (i) the Bank’s clients, customers, prospective clients and customers and their employees; (ii) clients and customers of the Bank’s clients and customers and their employees; (iii) the Bank’s suppliers, counterparties and other external parties, and their employees; and (iv) the Bank’s employees and prospective employees. The nature of both the Bank’s business and its IT infrastructure also means that data and personal information may be available in countries other than those from where the information originated. Accordingly, the Bank must ensure that its collection, use, transfer and storage of data, including personal information complies with all applicable laws and regulations in all relevant jurisdictions, which could: (i) increase the Bank’s compliance and operating costs; (ii) impact the development of new products or services, or the offering of existing products or services (iii) affect how products and services are offered to clients and customers; (iv) demand significant oversight by the Bank’s management; and (v) require the Bank to review some elements of the structure of its businesses, operations and systems in less efficient ways. Concerns regarding the effectiveness of the Bank’s measures to safeguard data, including personal information, or even the perception that those measures are inadequate, could expose the Bank to the risk of loss or unavailability of data or data integrity issues and/or cause the Bank to lose existing or potential clients and customers, and thereby reduce the Bank’s revenues. Furthermore, any failure or perceived failure by the Bank to comply with applicable privacy or data protection laws and regulations may subject it to potential contractual liability, claims, litigation, regulatory or other government action (including significant regulatory fines) and require changes to certain operations or practices which could also inhibit the Bank’s development or marketing of certain products or services, or increase the costs of offering them to customers. Any of these events could damage the Bank’s reputation subject the Bank to material fines or other monetary penalties, make the Bank liable to the payment of compensatory damages, divert management's time and attention, lead to enhanced regulatory oversight and otherwise materially adversely affect its business, results of operations, financial condition and prospects. For further details on data protection regulation applicable to the Bank, refer to the Supervision and regulation section. --- **f) Algorithmic trading** In some areas of the investment banking business, trading algorithms are used to price and risk manage client and principal transactions. An algorithmic error could result in erroneous or duplicated transactions, a system outage, or impact the Bank’s pricing abilities, which could have a material adverse effect on the Bank’s business, results of operations, financial condition, prospects and reputation. **g) Processing errors** The Bank’s businesses are highly dependent on its ability to process and monitor, on a daily basis, a very large number of transactions, many of which are highly complex and occur at high volumes and frequencies, across numerous and diverse markets in many currencies. As the Bank’s customer base and geographical reach expand and the volume, speed, frequency and complexity of transactions, especially electronic transactions (as well as the requirements to report such transactions on a real-time basis to clients, regulators and exchanges) increase, developing, maintaining and upgrading operational systems and infrastructure becomes more challenging, and the risk of systems or human error in connection with such transactions increases, as well as the potential consequences of such errors due to the speed and volume of transactions involved and the potential difficulty associated with discovering errors quickly enough to limit the resulting consequences. Furthermore, events that are wholly or partially beyond the Bank’s control, such as a spike in transaction volume, could adversely affect the Bank’s ability to process transactions or provide banking and payment services. Processing errors could result in the Bank, among other things: (i) failing to provide information, services and liquidity to clients and counterparties in a timely manner; (ii) failing to settle and/or confirm transactions; (iii) causing funds transfers, capital markets trades and/or other transactions to be executed erroneously, illegally or with unintended consequences; and (iv) adversely affecting financial, trading or currency markets. Any of these events could materially disadvantage the Bank’s customers, clients and counterparties (including them suffering financial loss) and/or result in a loss of confidence in the Bank which, in turn, could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. **h) Supplier exposure** The Bank depends on suppliers for the provision of many of its services and the development of technology. Whilst the Bank depends on suppliers, it remains fully accountable to its customers and clients for risks arising from the actions of suppliers and may not be able to recover from its suppliers any amounts paid to customers and clients for losses suffered by them. The dependency on suppliers and sub-contracting of outsourced services introduces concentration risk where the failure of specific suppliers could have an impact on the Bank’s ability to continue to provide material services to its customers. Failure to adequately manage supplier risk could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. **i) Estimates and judgements relating to critical accounting policies and regulatory disclosures** The preparation of financial statements requires the application of accounting policies and judgements to be made in accordance with IFRS. Regulatory returns and capital disclosures are prepared in accordance with the relevant capital reporting requirements and also require assumptions and estimates to be made. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the financial statements, include credit impairment provisions, fair value of financial instruments and taxes (refer to the notes to the audited financial statements for further details). There is a risk that if the judgement exercised, or the estimates or assumptions used, subsequently turn out to be incorrect, this could result in material losses to the Bank, beyond what was anticipated or provided for. Further development of accounting standards and regulatory interpretations could also materially impact the Bank’s results of operations, financial condition and prospects. **j) Tax risk** The Bank is required to comply with the domestic and international tax laws and practice of all countries in which it has business operations. There is a risk that the Bank could suffer losses due to additional tax charges, other financial costs or reputational damage as a result of failing to comply with such laws and practice (including where the Bank’s interpretation of such laws differs from the interpretation of tax authorities), or by failing to manage its tax affairs in an appropriate manner, with much of this risk attributable to the pan-European structure of the Bank. In addition, the introduction of new international tax regimes as well as increasing tax authority focus on reporting and disclosure requirements and the digitisation of the administration of tax in Europe have the potential to increase the Bank’s tax compliance obligations further. For example, the OECD and G20 Inclusive Framework on Base Erosion and Profit Shifting has announced plans to introduce a global minimum tax from 2023 which, if following implementation by the European Commission, is likely to increase the Bank’s tax compliance obligations. Any systems and process changes associated with complying with these obligations introduce additional operational risk. **k) Ability to hire and retain appropriately qualified employees** As a regulated financial institution, the Bank requires diversified and specialist skilled colleagues. The Bank’s ability to attract, develop and retain a diverse mix of talent is key to the delivery of its core business activity and strategy. This is impacted by a range of external and internal factors, such as macroeconomic factors, labour and immigration policy in the jurisdictions in which the Bank operates, industry-wide headcount reductions in particular sectors, regulatory limits on compensation for senior executives and the potential effects on employee engagement and wellbeing from long-term periods of working remotely. Failure to attract or prevent the departure of appropriately qualified and skilled employees could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. Additionally, this may result in disruption to service which could in turn lead to customer detriment and reputational damage. For further details on the Bank’s approach to operational risk, refer to the operational risk management and operational risk performance sections. **vi) Model risk** Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. The Bank relies on models to support a broad range of business and risk management activities, including informing business decisions and --- strategies, measuring and limiting risk, valuing exposures (including the calculation of impairment), conducting stress testing, calculating RWAs and assessing capital adequacy, supporting new business acceptance, risk and reward evaluation, managing client assets, and meeting reporting requirements. Models are, by their nature, imperfect representations of reality and have some degree of uncertainty because they rely on assumptions and inputs, and so are subject to intrinsic uncertainty, errors and inappropriate use affecting the accuracy of their outputs. This may be exacerbated when dealing with unprecedented scenarios, as was the case during the COVID-19 pandemic, due to the lack of reliable historical reference points and data. For instance, the quality of the data used in models across the Bank has a material impact on the accuracy and completeness of its risk and financial metrics. Model uncertainty, errors and inappropriate use may result in (among other things) the Bank making inappropriate business decisions and/or inaccuracies or errors in the Bank’s risk management and regulatory reporting processes. This could result in significant financial loss, imposition of additional capital requirements, enhanced regulatory supervision and reputational damage, all of which could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. For further details on the Bank’s approach to model risk, refer to the model risk management and model risk performance sections. **vii) Conduct risk** Conduct risk is the risk of poor outcomes for, or harm to, customers, clients and markets, arising from the delivery of the Bank’s products and services. This risk could manifest itself in a variety of ways, including: **a) Market conduct** The Bank’s businesses are exposed to risk from potential non-compliance with its policies and standards and instances of wilful and negligent misconduct by employees, all of which could result in potential customer and client detriment, enforcement action (including regulatory fines and/or sanctions), increased operation and compliance costs, redress or remediation or reputational damage which in turn could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. Examples of employee misconduct which could have a material adverse effect on the Bank’s business include: (i) improperly selling or marketing the Bank’s products and services; (ii) engaging in insider trading, market manipulation or unauthorised trading; or (iii) misappropriating confidential or proprietary information belonging to the Bank, its customers or third parties. These risks may be exacerbated in circumstances where the Bank is unable to rely on physical oversight and supervision of employees, noting the move to a hybrid working model for many colleagues. **b) Customer protection** The Bank must ensure that its customers, particularly those that are vulnerable, are able to make well-informed decisions on how best to use the Bank’s financial services and understand the protection available to them if something goes wrong. Poor customer outcomes can result from the failure to: (i) communicate fairly and clearly with customers; (ii) provide services in a timely and fair manner; (iii) handle and protect customer data appropriately; and (iv) undertake appropriate activity to address customer detriment, including the adherence to regulatory and legal requirements on complaint handling. The Bank is at risk of financial loss and reputational damage as a result. **c) Product design and review risk** Products and services must meet the needs of clients, customers, markets and the Bank throughout their life cycle. However, there is a risk that the design and review of the Bank’s products and services fail to reasonably consider and address potential or actual negative outcomes for customers, which may result in customer detriment, enforcement action (including regulatory fines and/or sanctions), redress and remediation and reputational damage. Both the design and review of products and services are a key area of focus for regulators and the Bank. **d) Financial crime** The Bank may be adversely affected if it fails to effectively mitigate the risk that third parties or its employees facilitate, or that its products and services are used to facilitate, financial crime (money laundering, terrorist financing, breaches of economic and financial sanctions, bribery and corruption, and the facilitation of tax evasion). EU regulations covering financial institutions continue to focus on combating financial crime. Failure to comply may lead to enforcement action by the Bank’s regulators, including severe penalties, which may have a material adverse effect on the Bank’s business, financial condition, prospects and reputation. **e) Conflicts of Interest** Identifying and managing Conflicts of Interest is fundamental to the conduct of the Bank's business, relationships with customers, and the markets in which the Bank operates. Understanding the Conflicts of Interest that impact or potentially impact the Bank enables them to be handled appropriately. Even if there is no evidence of improper actions, a Conflict of Interest can create an appearance of impropriety that undermines confidence in the Bank and its employees. If the Bank does not identify and manage Conflicts of Interest (business or personal) appropriately, it could have an adverse effect on the Bank's business, customers and the markets within which it operates. **f) Regulatory focus on culture and accountability** Regulators around the world continue to emphasise the importance of culture and personal accountability and enforce the adoption of adequate internal reporting and whistleblowing procedures to help to promote appropriate conduct and drive positive outcomes for customers, colleagues, clients and markets. The requirements and expectations of the ECB and CBI’s Fitness and Probity Regime have reinforced additional accountabilities for individuals across the Bank with an increased focus on governance and rigour, with similar requirements also introduced in other jurisdictions globally. The introduction of the CBI’s Individual Accountability Framework is expected to further increase individual accountability. Failure to meet these requirements and expectations may lead to regulatory sanctions, both for the individuals and the Bank. For further details on the Bank’s approach to conduct risk, refer to the conduct risk management and conduct risk performance sections. --- **viii) Reputation risk** Reputation risk is the risk that an action, transaction, investment, event, decision or business relationship will reduce trust in the Bank’s integrity and/or competence. Any material lapse in standards of integrity, compliance, customer service or operating efficiency may represent a potential reputation risk. Stakeholder expectations constantly evolve, and so reputation risk is dynamic and varies between geographical regions, groups and individuals. A risk arising in one business area can have an adverse effect upon the Bank’s overall reputation and any one transaction, investment or event (in the perception of key stakeholders) can reduce trust in the Bank’s integrity and competence. The Bank’s association with sensitive topics and sectors has been, and in some instances continues to be, an area of concern for stakeholders, including: (i) the financing of, and investments in, businesses which operate in sectors that are sensitive because of their relative carbon intensity or local environmental impact; (ii) potential association with human rights violations (including combating modern slavery) in the Bank’s operations or supply chain and by clients and customers; and (iii) the financing of businesses which manufacture and export military and riot control goods and services. Reputation risk could also arise from negative public opinion about the actual, or perceived, manner in which the Bank (including its employees, clients and other associations) conducts its business activities, or the Bank’s financial performance, as well as actual or perceived practices in banking and the financial services industry generally. Modern technologies, in particular online social media channels and other broadcast tools that facilitate communication with large audiences in short time frames and with minimal costs, may significantly enhance and accelerate the distribution and effect of damaging information and allegations. Negative public opinion may adversely affect the Bank’s ability to retain and attract customers, in particular, corporate and retail depositors, and to retain and motivate staff, and could have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. In addition to the above, reputation risk has the potential to arise from operational issues or conduct matters which cause detriment to customers, clients, market integrity, effective competition or the Bank (refer to ‘v) Operational risk’ above). For further details on the Bank’s approach to reputation risk, refer to the reputation risk management and reputation risk performance sections. **ix) Legal risk and legal, competition and regulatory matters** The Bank conducts activities in a highly regulated market which exposes it and its employees to legal risk arising from: (i) the multitude of laws and regulations that apply to the businesses it operates, which are highly dynamic, and may be unclear in their application to particular circumstances especially in new and emerging areas; and (ii) the diversified and evolving nature of the Bank’s businesses and business practices. In each case, this exposes the Bank and its employees to the risk of loss or the imposition of penalties, damages or fines from the failure of the Bank to meet its obligations, including legal, regulatory or contractual requirements. Legal risk may arise in relation to any number of the material existing and emerging risks identified above. A breach of applicable legislation and/or regulations by the Bank and/or its employees could result in criminal prosecution, regulatory censure, potentially significant fines and other sanctions. Where clients, customers or other third parties are harmed by the Bank’s conduct, this may also give rise to civil legal proceedings, including class actions. Other legal disputes may also arise between the Bank and third parties relating to matters such as breaches or enforcement of legal rights or obligations arising under contracts, statutes or common law. Adverse findings in any such matters may result in the Bank being liable to third parties or may result in the Bank’s rights not being enforced or not being enforced in the manner intended or desired by the Bank. There are no legal, competition or regulatory matters to which the Bank is currently exposed that give rise to a material contingent liability. Nonetheless, the Bank is engaged in various legal proceedings which arise in the ordinary course of business. The Bank is also subject to requests for information, investigations and other reviews by regulators, governmental and other public bodies in connection with business activities in which the Bank is, or has been, engaged and may (from time to time) be subject to legal proceedings and other investigations relating to financial and non-financial disclosures made by members of the Bank (including, but not limited to, in relation to ESG disclosures). Additionally, due to the increasing number of new climate and sustainability-related laws and regulations (or laws and regulatory processes seeking to protect the energy sector from any risks of divestment or challenges in accessing finance), growing demand from investors and customers for environmentally sustainable products and services, and regulatory scrutiny, financial institutions, including the Bank, may through their business activities face increasing litigation, conduct, enforcement and contract liability risks related to climate change, environmental degradation and other social, governance and sustainability-related issues. Furthermore, there is a risk that shareholders, campaign groups, customers and other interest groups could seek to take legal action against the Bank for financing or contributing to climate change and environmental degradation. The outcome of legal, competition and regulatory matters, both those to which the Bank is currently exposed and any others which may arise in the future, is difficult to predict (and any provision made in the Bank’s financial statements relating to those matters may not be sufficient to cover actual losses). In connection with such matters, the Bank may incur significant expense, regardless of the ultimate outcome, and any such matters could expose the Bank to any of the following outcomes: substantial monetary damages, settlements and/or fines; remediation of affected customers and clients; other penalties and injunctive relief; additional litigation; criminal prosecution; the loss of any existing agreed protection from prosecution; regulatory restrictions on the Bank’s business operations including the withdrawal of authorisations; increased regulatory compliance requirements or changes to laws or regulations; suspension of operations; public reprimands or censure; loss of significant assets or business; a negative effect on the Bank’s reputation; loss of confidence by investors, counterparties, clients and/or customers; risk of credit rating agency downgrades; potential negative impact on the availability and/or cost of funding and liquidity; and/or dismissal or resignation of key individuals. In light of the uncertainties involved in legal, competition and regulatory matters, there can be no assurance that the outcome of a particular matter or matters (including formerly active matters or those arising after the date of this Annual Report) will not have a material adverse effect on the Bank’s business, results of operations, financial condition and prospects. --- # Risk review ## Principal risk management ### Climate risk management The impact on Financial and Operational Risks arising from climate change through physical risks, risks associated with transitioning to a lower carbon economy and connected risks arising as a result of second order impacts of these two drivers on portfolios. #### Overview Given the risks associated with climate change, and to support the Barclays Group ambition to be a net zero bank by 2050, climate risk became a Principal Risk in January 2022. To support the embedment of the Principal Risk, in 2022 the Barclays Group delivered a Climate Risk Plan with three overarching objectives: 1. **Governance Framework:** Establish a Climate Risk Committee, a Climate Risk Controls Forum, and refresh the Board Risk Committee reporting 2. **Scenario Analysis:** Build out the vision and plan for undertaking scenario analysis exercises. This involved developing a climate scenario analysis framework 3. **Carbon Modelling:** Expand the BlueTrack^TM for measuring and tracking financed emissions to cover our automobiles and residential real estate portfolios, in addition to energy, power, cement and steel #### Organisation and structure On behalf of the BBI Board, the BBI BRC reviews and approves the Bank’s approach to managing the financial and operational risks associated with climate change. Broader sustainability matters and other reputation risk issues associated with climate change are coordinated by the Sustainability Team. BBI has appointed Head of Climate Risk responsible for management of Climate Risk, reporting into the Deputy CRO. The Head of Climate Risk is the Climate Principal Risk owner, accountable for the management and oversight of the Climate risk profile. To support the oversight of Barclays’s Climate risk profile, regular monitoring is provided by the BBI Risk Committee (‘BBI RC’). BBI RC is the delegated committee of BBI BRC where climate risk is reviewed. BBI has a representative on the Barclays Group Climate Risk Committee (‘CRC’). To support the oversight of Barclays Group climate risk profile, a CRC has been established, as a sub-committee of GRC. The authority of the CRC is delegated by the Group Risk Committee (‘GRC’). The GRC is the most senior executive body responsible for review and challenge of risk practices and risk profile, for climate risk and other principal risk types. CRC has reviewed and approved a range of updates including refreshed Climate Risk Vision, updates from each of the financial and operational risks and from the material legal entities of the firm, along with key regulatory, policy and legal themes, the risk register, appetite statement & constraint and reviewed the control environment. BBI has a representative on the Climate Risk Control Forum (‘CRCF’), which was established in July 2022 and escalates to GRC via the Group Controls Committee. The purpose of the CRCF is to oversee the consistent and effective implementation and operation of the Barclays Controls Framework relating to Climate Risk. It reviews the control environment relating to Climate Risk, including risk events, policy and issues management. Climate Risk assurance groups have been established and are responsible for performing Climate Risk specific reviews to ensure we are continually improving and addressing identified issues in our risk practices. --- The elevation of climate risk to Principal Risk included establishment of governance elements, including: - A Climate Risk Framework that defines climate risk and summarises the approach to identification, measurement, monitoring and reporting of climate risk. - Climate Risk Appetite and constraint at the Group level established in line with the Group’s risk appetite approach and informed by scenario analysis. BBI has embedded the qualitative risk appetite statement into its own documents, reflecting alignment with the Barclays Group in achieving its ambition of reducing emissions to net zero by 2050. - Climate Risk Stress Testing, such as the ECB Climate Risk Stress Test exercise BBI participated in during 2022. This was an exploratory exercise designed to test climate stress testing capabilities and assess the financial resilience of participating banks. The exercise was split across four defined scenarios, including paths for Physical and Transition risk events, spanning between 1 and 30 year time horizons. The exercise was limited in scope to only cover a proportion of BBI portfolios. Overall, all climate risk stress impacts were considered manageable on an absolute basis, with the largest loss observed in the Drought and Heat scenario from Wholesale Credit Risk positions. ECB have since provided general feedback with respect to banks' stress testing capabilities and an expectation that further developments will be made in the coming years. More information on the ECB exercise has been detailed on page 69 of Barclays Group 2022 Annual Report. - Climate Risk Register is used to inform risk appetite. This includes a breakdown of key risk drivers for physical and transition risks, and materiality ratings which are inferred from the results of the 2022 EBA Stress test, 2020 climate Internal Stress Test and 2021 Bank of England’s Climate Biennial Exploratory Scenario (‘CBES’). The Climate Risk Register continues to align with the Group’s Risk Register Taxonomy. - Barclays will be performing a Group-wide climate scenario analysis exercise in 2023, to test the impact to Barclays' portfolios from a severe but plausible climate scenario. This exercise is split across four phases over a five-year time horizon, including paths for Physical, Connected and Transition risk events. The exercise will be used as part of Barclays' ongoing climate risk management, to better quantify the impacts of climate change on the Bank’s portfolios and balance sheet. This will enable Barclays including the Bank, to improve its understanding of how climate risks interact with macroeconomic stresses and to support Barclays' resilience to climate risk. Climate risk across Financial and Operational Risks is managed via a Climate Change Financial Risk and Operational Risk Policy (‘CCFOR’), which is embedded in each of the Financial and Operational Principal Risk Frameworks. Climate risk across Model, Conduct, Reputation and Legal Principal Risks are out of the scope of the CRF and continue to be managed under their respective Principal Risk Frameworks. The table below sets out how climate risk is integrated across Barclays using the ERMF aligned Climate Risk Framework, CCFOR and the Climate Change Standard. ### Climate-related risks identified over the short, medium and long term The Bank broadly categorises climate risks into three categories – physical risk, transition risk and connected risk. For further details on how the Bank defines these risks, refer to the material existing and emerging risks (climate) section on pages 38 and 39. Within these, the Bank identifies risk drivers from climate change which we monitor over the short, medium and long term: - Short term (S) – 0-1 year - Medium term (M) – 1-5 years - Long term (L) – 5-30 years ### Climate change as a driver of risk Climate change may lead to economic and operational impacts and may increase the likelihood or severity of other risks, for example: - cyclical: amplifying economic cycles, including deeper troughs; - event-driven: a singular event or series of events, for example severe weather events leading to physical risk impacts; and - structural: macroeconomic shifts as economies transition to a low-carbon economy, driven by regulatory tightening such as introduction of carbon pricing mechanisms, emission trading schemes and technology evolution. There is potential for tail risks and tipping points, including from chronic physical risks that are not currently clearly understood. This might include impacts from a lack of access to clean water, mass human migration due to inhospitable conditions, biodiversity and ecosystem services loss, second order impacts on food chain, or conflict resulting from competition for environmental resources. The tables overleaf summarise the nature, drivers and potential impacts of physical and transition risks. Analysis of these drivers is undertaken as part of the Barclays Group's annual review of elevated sectors, clients operating in these sectors and monthly horizon scanning of new developments leading to climate-related risks. These risk drivers have been assessed through qualitative analysis, external research and expert views. Quantitative analysis is also undertaken through the Barclays Group’s programme of scenario analysis. The feedback effects of climate risk drivers through macro and micro transmissions channels are observed in Barclays' portfolio through traditional risk categories such as credit risk, market risk, operational risk etc. The approach to identify, measure and manage climate-related risks is consistent with other key risks, however the climate-related financial risks with significant impact are most likely to materialise in the longer term. --- ### Physical risks | | Acute | Chronic | | :--- | :--- | :--- | | **Example drivers** | • Damage to fixed assets and infrastructure (property, power supplies) by climate events such as wildfires • Adverse impact on agriculture and production of soft commodities due to drought • Transport difficulties and damage to infrastructure due to severe storm and flooding | • Change in weather and precipitation patterns, resulting in reduced agricultural yields and land no longer suitable for farming • Potential population migration due to inhabitable land • Increase in sea levels and consequent coastal erosion, requiring building of new seawall and flood defences • Rising temperatures resulting in diminished productivity and health issues | | **Potential impacts – examples** | • Increased costs due to damage to facilities • Reduced revenue from decreased production capacity • Increased operating costs and decrease in sales due to unavailability of raw materials and supply chain disruptions | • Reduced revenue from decreased production capacity and early retirement of assets • Decrease in property values • Increased costs and insurance for assets in high risk locations • Reduced revenue from lower sales and output | | **Expected time horizon** | S^a, M, L | M, L | | **Classification** | Event-driven | Structural | | **Primary risks impacted** | Credit Risk, Market Risk, Treasury and Capital Risk, Operational Risk, Reputational Risk | | | **Secondary risks impacted** | Conduct Risk, Legal Risk | | ### Transition risk | | Policy and Regulatory | Legal | Technology | Market | | :--- | :--- | :--- | :--- | :--- | | **Example drivers** | • Carbon tax impacting sectors and clients • Tightening of emissions and energy efficiency standards • Imposing an absolute cap on GHG emissions at manufacturing sites • Enhanced GHG reporting obligations | • Government and non-governmental organisations taking litigation actions • Imposing legal liabilities on firms for their contribution to physical impacts of climate change | • Disruptive substitute technologies being favoured because of lower carbon footprint • Development of emissions capture and recycling facilities • Investments in new technologies • Alternatives to fossil fuel | • Shift in consumer preferences • Changes in supply and demand of raw materials • Shareholder perceptions and consumer pressures • Changing market sentiment | | **Potential impacts – examples** | • Increased operating cost for compliance • Increased capital expenditure to meet regulatory standards • Operating constraints • Write-offs and early retirement of assets | • Increased costs due to fines and penalties from class action damages • Changes in the valuation of assets • Decreased demand for products and services | • Impairment of assets and early retirement of assets • Research and development expenditure in new technologies • Costs for adoption of new practices and processes | • Increased costs and reduced demand for products and services • Increased production costs due to changing input prices and output requirements • Decreased revenue and repricing of assets | | **Expected time horizon** | S^a, M, L | S^a, M, L | S^a, M, L | S^a, M, L | | **Classification** | Event-driven, Structural | Event-driven, Structural | Structural | Structural | | **Primary risks impacted** | Credit Risk, Market Risk, Treasury and Capital Risk, Operational Risk, Reputational Risk | | | | | **Secondary risks impacted** | Conduct Risk, Legal Risk | | | | *Note* *a. Whilst these risks will start to manifest over these time horizons, we expect financial impact in the short term to be immaterial based on current information/circumstances, with no specifically identified charges related to climate risks in the 2022 reported expected credit losses.* --- ### Risk appetite In 2022, as part of establishing a principal risk, Barclays Group defined a risk appetite statement and constraint for climate risk. The statement outlines that Barclays Group views climate change as a driver of financial and operational risk. Barclays Group has appetite to manage climate risk in line with its climate ambition and to reduce financed emissions in line with disclosed targets. BBI established a qualitative risk appetite statement in 2022 for climate risk. Targets to 2025 are set for energy and power. Targets to 2030 are set for energy, power, cement, steel and automotive manufacturing for Barclays Group. An assessment of progress to reduce financed emissions against the disclosed targets was made by Barclays Group. It noted that reaching even the lower emissions reduction in the disclosed ranges may prove challenging and that a clearer forward plan be defined to set out the range of management actions that could be taken to meet the disclosed target ranges, including a more detailed understanding of client transition expectations and the external dependencies and variables beyond Barclays Group control that may determine the pace of transition. | | Enterprise Risk Management Framework (‘ERMF’) | | :--- | :--- | | | **Climate Risk Framework** | | | **Climate Change Financial Risk and Operational Risk Policy** | **Climate Change Standard** | | | Climate Risk | Credit Risk | Market Risk | Treasury and Capital Risk | Operational Risk | Reputation Risk | | **Responsibilities** | Provide climate horizon scanning information and emerging trends to BRC and Principal Risk Leads. Recommend risk appetite statement, constraints and exclusions to BRC. Define areas of concern and recommend scenario analysis priorities. Lead the development of climate-specific risk methodologies. Interpret stress test results for relevance as drivers of risk. Review and challenge risk type approaches and support consistency across risk types. Aggregate and monitor a central climate risk view across in scope risk types. | Monitor portfolio level exposure to the physical and transition risks of climate change. Review individual obligors’ exposure to climate risk via the Climate Lens questionnaire. Assess climate risk within Sovereign Credit Risk reviews. Include material exposures to climate risk within the Internal Capital Adequacy Assessment Process (‘ICAAP’). Oversight by Legal Entity Climate Risk Forums and relevant Risk Management Committees as appropriate, including regular climate risk reporting up to Board Risk Committee level. | Identify and Assess climate-related risk factors. Apply stress scenarios, assess stress losses and set risk limits. Oversight by Market Risk Committee and Board Risk Committee. | Identify exposure to climate risk. Consider key risk indicators and limits to support risk management. Include in ICAAP and Internal Liquidity Adequacy Assessment Process (‘ILAAP’). Oversight by Treasury & Capital Risk Committee and Board Risk Committee. | Integrate climate change across different risk categories, e.g. Operational Recovery Planning and Premises. Include climate change within risk assessment processes including Strategic Risk Assessment. | Outline minimum requirements and controls for Reputation Risk management relating to client relationships or transactions. Outline the expected business behaviours in relation to these issues. Outline the approach to enhanced due diligence. | | **Ownership** | Climate Risk Accountable Officer | Credit Risk Accountable Officer | Market Risk Accountable Officer | Treasury & Capital Risk Accountable Officer | Operational Risk Accountable Officer | Group Head of Sustainability | --- ### Climate-related Risk Management Processes | | Credit Risk | Market Risk | Treasury and Capital Risk | Operational Risk | | :--- | :--- | :--- | :--- | :--- | | **Frequency of assessment** | Various | Quarterly | Various (quarterly for IRRBB and liquidity risk; annually for capital risk) | Annually | | **Risk identification** | Wholesale exposure identified as part of sovereign, portfolio and obligor credit annual reviews. | Identified by assessing climate-related risk factors across asset classes, sectors and geographies, and aggregating market risk exposures from climate-related risks. | Identified through risk assessment activity across certain industries and asset classes to analyse and assess exposures which may be impacted by climate-related risks. | Confirmed operational risks associated with climate change are included in the Bank’s Operational Risk Taxonomy. Climate risks are included within the Strategic Risk Assessment process. | | **Risk assessment** | Portfolios are monitored through regular reporting of climate metrics and are assessed against mandates and limits where appropriate. Clients in elevated risk sectors above a threshold exposure will have their credit risk exposure to Climate Risk qualitatively assessed through the Credit Climate Lens questionnaire. Future exposure to Climate Risk as a driver to Credit Risk is quantified through scenario analysis and stress testing exercises. In addition to the Credit Climate Lens questionnaire, Sovereign Credit Reviews are also carried out for Sovereigns above a threshold exposure to assess their susceptibility to Climate risks. | Measured by using adverse multi-asset stress scenarios applied to individual risk factors reflecting climate change risks across sectors, countries and regions. | Measured as part of stress testing and key risk indicator monitoring. | Establishing reporting on internal and external climate-related risk events at Group’s Climate Risk Control Forum. Risk tolerances for premises and resilience risks are reviewed so these adequately capture climate-related risk drivers. | --- ### Credit risk management (audited) The risk of loss to the Bank from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the Bank, including the whole and timely payment of principal, interest, collateral and other receivables. #### Overview Credit risk is the risk of suffering financial loss, should any of the Bank’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Bank. Credit risk exists as a result of the Bank providing loans, advances and loan commitments arising from such lending activities and from credit enhancements provided by the Bank such as financial guarantees, letters of credit, endorsements and acceptances. The granting of credit is one of the Bank’s major sources of income and the Bank dedicates considerable resources to its control. The sanctioning of individual exposures is performed by the Bank’s Credit Sanctioning Team (in accordance with sanctioning discretions). #### Organisation, roles and responsibilities Responsibility for oversight of credit sanctioning lies with the Credit Risk Management Forum which is chaired by the Bank’s Head of Credit Risk, who reports to the Bank’s CRO. The Bank’s Credit Risk Management Forum exercises oversight through regular review of the Bank’s credit portfolio examining, inter alia the constitution of the portfolio in terms of sectorial and individual exposures against the Bank’s overall Risk Appetite. The CRO, who is a Co-Chair of the Bank’s Credit Risk Management Forum, reports the views of this Forum to the BRC as part of the CRO Risk Report, which is a standing agenda item. Corporate loans which are identified as showing signs of credit stress/deterioration are recorded on graded problem exposure lists known as watch lists. These lists are updated monthly and circulated to the relevant Management Committees. Once listing has taken place, exposures are closely monitored and, where appropriate, reduced and/or cancelled. Watch list exposures are categorised in line with the perceived degree of the risk attached to the lending, and its probability of default. In line with the wider Group’s policy, the Bank works to four watch list categories based on the degree of concern. By the time an account becomes credit impaired it will normally have passed through all four categories, each of which reflect the need for ever-increasing caution and control. Where a customer’s financial condition gives grounds for concern, it is placed into the appropriate category. Corporate customers, regardless of financial health, are typically subject to a full review of all facilities on, at least, an annual basis. More frequent interim reviews may be undertaken should circumstances dictate. Retail customers are greater in number and, therefore, are managed in aggregated segments. ### Credit risk mitigation The Bank mitigates the credit risk to which it is exposed through netting and set-off, collateral and risk transfer. #### Netting and set-off Credit risk exposures can be reduced by applying netting and set-off. For derivative transactions, the Bank’s normal practice is to enter into standard master agreements with counterparties (e.g. International Swaps Derivatives Association master agreements (‘ISDAs’)). These master agreements typically allow for netting of credit risk exposure to a counterparty resulting from derivative transactions against the obligations to the counterparty in the event of default, and so produce a lower net credit exposure. These agreements may also reduce settlement exposure (e.g. for foreign exchange transactions) by allowing payments on the same day in the same currency to be set-off against one another. #### Collateral The Bank has the ability to call on collateral in the event of default of the counterparty, comprising: - home loans: a fixed charge over residential property in the form of houses, flats and other dwellings - wholesale lending: a fixed charge over commercial property and other physical assets, in various forms - derivatives: the Bank also often seeks to enter into a margin agreement (e.g. Credit Support Annex) with counterparties with which the Bank has master netting agreements in place. These annexes to master agreements provide a mechanism for further reducing credit risk, whereby collateral (margin) is posted on a regular basis (typically daily) to collateralise the mark to market exposure of a derivative portfolio measured on a net basis - reverse repurchase agreements: collateral typically comprises highly liquid securities which have been legally transferred to the Bank subject to an agreement to return them for a fixed price - financial guarantees and similar off-balance sheet commitments: cash collateral or collateral in the form of securities may be held against these arrangements. #### Risk transfer A range of instruments including guarantees, credit insurance, credit derivatives and securitisation can be used to transfer credit risk from one counterparty to another. These mitigate credit risk in two main ways: - if the risk is transferred to a counterparty which is more creditworthy than the original counterparty, then overall credit risk is reduced - where recourse to the first counterparty remains, both counterparties must default before a loss materialises. This is less likely than the default of either counterparty individually so credit risk is reduced. --- ### Market risk management The risk of loss arising from potential adverse changes in the value of the Bank’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, credit spreads, implied volatilities and asset correlations. #### Overview Market risk arises primarily as a result of client facilitation in wholesale markets, involving market making activities, risk management solutions and execution of syndications. Upon execution of a trade with a client, the Bank will look to hedge against the risk of the trade moving in an adverse direction. Mismatches between client transactions and hedges result in market risk due to changes in asset prices, volatility or correlations. The Bank’s market risk is managed with intragroup and external market counterparts and the Bank is committed to sourcing external hedges in line with the Bank’s operating model. Some desks within the Bank still employ a back to back booking model (structured rates and equity derivatives as two examples). In the back to back model, market risk is transferred to a Barclays affiliate (BB PLC, Barclays Capital Securities Limited (‘BCSL’) and/or Barclays Capital International (‘BCI’) or a third party on a one to one, trade by trade basis). A measurement technique used to measure and control market risk is Management Value at Risk (‘VaR’). Management VaR is an estimate of the potential loss which might arise from unfavourable market movements, if the current positions were to be held unchanged for one business day, measured to a confidence level of 95%. Daily losses exceeding the Management VaR figure are likely to occur, on average five times in every 100 business days. Management VaR is calculated with Barclays Group models using the historical simulation method with a historical sample of one year. The Management VaR model in some instances may not appropriately measure some market risk exposures, especially for market moves that are not directly observable via prices. When reviewing Management VaR estimates, the following considerations are taken into account: - the historical simulation uses the most recent year of past data to generate possible future market moves, but the past year may not be a good indicator of the future - the one-day time horizon may not fully capture the market risk of positions that cannot be closed out or hedged within one day - management VaR is based on positions as at close of business and consequently, it is not an appropriate measure for intra-day risk arising from a position bought and sold on the same day; and - management VaR does not indicate the size of potential loss beyond the Management VaR confidence level. #### Organisation, roles and responsibilities The Market Risk Sub Committee reviews and makes recommendations concerning the Bank’s market risk profile. This includes overseeing the operation of the Market Risk Framework and associated policies and standards; reviewing market dynamics or regulatory issues and reviewing limits and utilisation. The Barclays Europe Market Risk Sub Committee reviews and makes recommendations concerning the Bank’s market risk profile. This includes reviewing market dynamics, regulatory issues and limit utilisation levels. The committee is chaired by the Head of Market Risk and attendees include business aligned market risk managers and the co-heads of the Markets business. ### Treasury and capital risk management This comprises: **Liquidity risk:** The risk that the Bank is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets. **Capital risk:** The risk that the Bank has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments and stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This also includes the risk from the Bank’s defined benefit pension plans. **Interest rate risk in the banking book:** The risk that the Bank is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. ### Liquidity risk management (audited) #### Overview The efficient management of liquidity is essential to the Bank in order to retain the confidence of the financial markets and maintain the sustainability of the business. Treasury and Capital Risk have created a framework to manage all liquidity risk exposures under both normal and stressed conditions. The framework is designed to maintain liquidity resources that are sufficient in amount, quality and funding tenor profile to remain within the liquidity risk appetite as expressed by the Bank’s Board. The liquidity risk appetite is monitored against both internal and regulatory liquidity metrics. #### Organisation, roles and responsibilities Treasury has the primary responsibility for managing liquidity risk within the set risk appetite. Both Risk and Treasury contribute to the production of the Internal Liquidity Adequacy Assessment Process (‘ILAAP’). The Treasury and Capital Risk function is responsible for the management and governance of the liquidity risk mandate, as defined by the Bank’s Board. --- The framework established by Treasury and Capital Risk is designed to deliver the appropriate term and structure of funding, consistent with the liquidity risk appetite set by the Bank’s Board. The framework incorporates a range of ongoing business management tools to monitor, limit and stress test the Bank’s balance sheet and contingent liabilities. Limit setting and transfer pricing are tools designed to control the level of liquidity risk taken and drive the appropriate mix of funds. In addition, the Bank maintains a recovery plan. Adherence to limits reduces the likelihood that a liquidity stress event could lead to an inability to meet the Bank’s obligations as they fall due. The Bank’s Board approves the funding plan, internal stress tests and results of regulatory stress tests (as applicable). The Bank’s Asset and Liability Committee (‘ALCO’) is responsible for monitoring and managing liquidity risk in line with the Bank’s funding management objectives, funding plan and risk frameworks. Treasury and Capital Risk monitors and reviews the liquidity risk profile and control environment, providing second line oversight of the management of liquidity risk. The Bank’s Board Risk Committee reviews the risk profile, and reviews liquidity risk appetite at least annually and the impact of stress scenarios on the Bank’s funding plan/forecast in order to agree the Bank’s projected funding abilities. ### Capital risk management (audited) #### Overview Capital risk is managed through ongoing monitoring and management of the capital position, regular stress testing and a robust capital governance framework. The objectives of the framework are to maintain adequate capital for the entity to withstand the impact of the risks that may arise under normal and stressed conditions, and maintain adequate capital to cover current and forecast business needs and associated risks to provide a viable and sustainable business offering. #### Organisation, roles and responsibilities The management of capital risk is integral to the Bank’s approach to financial stability and sustainability management, and is embedded in the way businesses and legal entities operate. Capital risk management is underpinned by a control framework and policy. The capital management strategy, outlined in the Bank’s capital plans, is developed in alignment with the control framework and policy for capital risk, and is implemented consistently in order to deliver on the Bank’s objectives. The Board approves the Bank’s capital plan, internal stress tests and results of regulatory stress tests, and the Bank’s recovery plan. The ALCO is responsible for monitoring and managing capital risk in line with the Bank’s capital management objectives, capital plan and risk frameworks. The Risk Committee monitors and reviews the capital risk profile and control environment, providing second line oversight of the management of capital risk. The Board Risk Committee reviews the risk profile, and reviews risk appetite at least annually and the impact of stress scenarios on the Bank’s capital plan/forecast in order to agree the Bank’s projected capital adequacy. Management assures compliance with the Bank’s minimum regulatory capital requirements by reporting to the ALCO, with oversight also from the Risk Committee. Treasury has the primary responsibility for managing and monitoring capital adequacy. The Treasury and Capital Risk function provides oversight of capital risk. Production of the Bank’s Internal Capital Adequacy Assessment Process (‘ICAAP’) is the responsibility of the Bank’s Treasury function. #### Pension risk The Bank maintains a number of defined benefit pension schemes for past and current employees. The ability of schemes to meet pension payments is achieved with investments and contributions. Pension risk arises because the market value of pension fund assets might decline; investment returns might reduce; or the estimated value of pension liabilities might increase. BBI monitors the pension risks arising from its defined benefit pension schemes and works with the relevant pension fund’s trustees to address shortfalls. In these circumstances, the Bank could be required or might choose to make extra contributions to the pension fund. ### Interest rate risk in the banking book #### Overview Interest rate risk in the banking book (‘IRRBB’) is driven by customer deposit taking and lending activities and funding activities. As per the Bank’s policy to remain within the defined risk appetite, businesses and Treasury execute hedging strategies to mitigate the various IRRBB risks that result from these activities. However, the Bank remains susceptible to interest rate risk and other non-traded market risks from the following key sources: - **Interest rate and repricing risk:** the risk that net interest income could be adversely impacted by a change in interest rates, differences in the timing of interest rate changes between assets and liabilities, and other constraints on interest rate changes as per product terms and conditions. - **Customer behavioural risk:** the risk that net interest income could be adversely impacted by the discretion that customers and counterparties may have in respect of being able to vary from their contractual obligations with the Bank. This risk is often referred to by industry regulators as ‘embedded option risk’. --- #### Organisation, roles and responsibilities The Bank’s ALCO, is responsible for monitoring and managing IRRBB risk in line with the Bank’s management objectives and risk frameworks. The Risk Committee monitors and reviews the IRRBB risk profile and control environment, providing second line oversight of the management of IRRBB. The BRC reviews the interest rate risk profile, including review of the risk appetite at least annually and the impact of stress scenarios on the interest rate risk of the Bank’s banking books. In addition, the Bank’s IRRBB policy sets out the processes and key controls required to identify all IRRBB risks arising from banking book operations, to monitor the risk exposures via a set of metrics with a frequency in line with the risk management horizon, and to manage these risks within agreed risk appetite and limits. ### Operational risk management The risk of loss to Bank from inadequate or failed processes or systems, human factors or due to external events (for example fraud) where the root cause is not due to credit or market risks. #### Overview The management of operational risk has three key objectives: - deliver an operational risk capability owned and used by business leaders to enable sound risk decisions over the long term - provide the frameworks, policies and standards to enable management to meet their risk management responsibilities while the second line of defence provides robust, independent, and effective oversight and challenge - deliver a consistent and aggregated measurement of operational risk that will provide clear and relevant insights, so that the right management actions can be taken to keep the operational risk profile consistent with the Bank’s strategy, the stated risk appetite and stakeholder needs. The Bank operates within a system of internal controls that enables business to be transacted and risk taken without exposing it to unacceptable potential losses or reputational damages. #### Organisation, roles and responsibilities The prime responsibility for the management of operational risk and the compliance with control requirements rests with the business and functional units where the risk arises. The operational risk profile and control environment is reviewed by business management through specific meetings which cover these items. Operational risk issues escalated from these meetings are considered through the second line of defence review meetings. Depending on their nature, the outputs of these meetings are presented to the Operational Risk Profile Forum, the Operational Risk Committee, the Bank’s BRC or the Bank’s BAC. Businesses and functions are required to report their operational risks on both a regular and an event-driven basis. The reports include a profile of the material risks that may threaten the achievement of their objectives and the effectiveness of key controls, operational risk events and a review of scenarios. The Barclays Group Head of Operational Risk is responsible for establishing, owning and maintaining an appropriate Barclays Group-wide Operational Risk Management Framework and for overseeing the portfolio of operational risk across Barclays Group. The Bank’s Head of Operational Risk is responsible for recommending the Bank’s adoption of the Operational Risk Framework, ensuring the Bank’s-specific requirements are recognised through the Bank’s Addenda where appropriate, and is responsible for monitoring the portfolio of operational risk across the Bank. The Operational Risk function acts in a second line of defence capacity, and is responsible for defining and overseeing the implementation of the framework and monitoring Barclays’ operational risk profile. The Operational Risk function alerts management when risk levels exceed acceptable tolerance in order to drive timely decision making and actions by the first line of defence. Specific reports are prepared by Operational Risk on a regular basis for the Bank Risk Committee, and the Bank BRC. #### Operational risk categories Operational risks are grouped into risk categories to support effective risk management, measurement and reporting. These comprise: Data Management Risk; Financial Reporting Risk; Fraud Risk; Information Security and Cyber Risk; Operational Recovery Planning Risk; Payments Processing Risk; People Risk; Premises Risk; Physical Security Risk; Change Delivery Management Risk; Supplier Risk; Tax Risk; Technology Risk; and Transaction Operations Risk. In addition to the above, operational risk encompasses the risk associated with compliance with Group Resolution Planning Prudential regulatory requirements. #### Connected risks Barclays also recognises that there are certain threats/risk drivers which are interconnected and have the potential to impact the Bank’s strategic objectives. These are referred to as Connected Risks and require an overarching and integrated risk management and / or reporting approach. The Bank’s Connected Risks include Cyber, Data, Resilience and Third-Party Service Providers. For definitions of the Bank’s Operational Risk Categories and Connected Risks, refer to the Bank’s Pillar 3 Report. --- ### Model risk management The potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. #### Overview The Bank uses models to support a broad range of activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures, conducting stress testing, assessing capital adequacy, managing client assets, and meeting reporting requirements. #### Organisation, roles and responsibilities The Barclays Group has a dedicated Model Risk Management (‘MRM’) function that consists of five teams: (i) Independent Validation Unit (‘IVU’), responsible for model validation and approval; (ii) Group Model Risk Governance, responsible for model risk governance, controls and reporting, as well as providing oversight for compliance of the Model Owner community with the Model Risk Framework; (iii) Framework team, responsible for the Model Risk Policy and associated standards; (iv) Strategy and Transformation, responsible for inventory, strategy, communications and business management; and (v) Model Risk Measurement and Quantification (‘MRMQ’), responsible for the design of the framework and methodology to measure and, where possible, quantify model risk. It is also responsible for the strategic Validation Centre of Excellence (‘VCoE’), which is an independent quality assurance function within MRM with the mandate to review and challenge validation outcomes. The primary responsibility for identifying and managing model risk and adherence to the control requirements sits with model users and support functions where the risk arises. Barclays Group’s Global Head of Model Risk Management is responsible for providing effective oversight, management and escalation of model risk in line with the Model Risk Principal Risk Framework. The Bank’s Board has designated the Model Management Committee to provide executive oversight of model issues and model risk within the Bank. The Model Management Committee escalates issues to the Bank’s Executive Risk or Control Committees as appropriate, and regular updates are provided to the Bank’s Board. The Model Management Committee is supported by the Bank’s Model Risk Governance & Review (‘MRGR’) function. The Head of MRGR reports (i) to the Head of the Bank’s Model Risk Management, a role within the Group Model Risk Governance team; and (ii) locally to the Bank’s CRO. The head of MRGR is accountable to ensure the suitability of models to the Bank through review and challenge of model validations and approvals by the Group Model Risk Management function; and through review and challenge of the model risk frameworks, policies, standards and procedures. The Model Risk Framework consists of the Model Risk Policy and standards. The policy prescribes the Barclays Group-wide, end-to-end requirements for the identification, measurement and management of model risk, covering model documentation, development, monitoring, annual review, independent validation and approval, change and reporting processes. The policy is supported by global standards covering model inventory, documentation, validation, testing and monitoring, overlays, risk appetite, and stress testing challenger models. The key model risk management activities include: - Correctly identifying models across all relevant areas of the Bank and recording models in the Barclays Group Models Database (‘GMD’), the Barclays Group-wide model inventory. - Enforcing that every model has a model owner who is accountable for the model. The model owner must sign off models prior to submission to IVU for validation and maintain that the model presented to IVU is and remains fit for purpose. - Overseeing that every model is subject to validation and approval by IVU, prior to being used and on a continual basis. - Defining model risk appetite in terms of risk tolerance, and qualitative metrics which are used to track and report model risk. ### Conduct risk management The risk of poor outcomes for, or harm to, customers, clients and markets, arising from the delivery of the Bank’s products and services. #### Overview The Bank defines, manages and mitigates conduct risk with the objective of providing good customer and client outcomes and protecting market integrity. Conduct risk incorporates market integrity, customer protection, financial crime and product design and review risks. #### Organisation, roles and responsibilities The Conduct Risk Management Framework (‘CRMF’) outlines how the Bank manages and measures its conduct risk profile. The Barclays Group Chief Compliance Officer is accountable for developing, maintaining and overseeing the CRMF. This includes defining and owning the relevant conduct risk policies which detail the control objectives, principles and other core requirements for the activities of the Bank. The Bank’s Chief Compliance Officer oversees the performance of these responsibilities for the Bank. This includes monitoring and reporting on the consistent application and effectiveness of the implementation of controls to manage conduct risk. It is the responsibility of the first line of defence to establish controls to manage its performance and assess conformance to the CRMF. Senior managers are accountable within their areas of responsibility for owning and managing conduct risk in accordance with the CRMF. Compliance as an independent second line function oversees that conduct risks are effectively identified, managed, monitored and escalated, and has a key role in helping the Bank achieve the right conduct outcomes and evolve a conduct-focused culture. The governance of conduct risk within the Bank is fulfilled through management committees and forums operated by the first and second lines of defence with clear escalation and reporting lines to the BBI Board. The BBI Risk Committee is the primary second line governance committee for the oversight of the conduct risk profile. The Risk Committee’s responsibilities include the identification and discussion of --- any emerging conduct risk exposures in the Bank. The BBI Conduct and Reputational Risk Committee, a subcommittee of the Bank’s Executive Committee, is dedicated to providing executive oversight of conduct risk within BBI. ### Reputation risk management The risk that an action, transaction, investment, event, decision, or business relationship will reduce trust in the Bank’s integrity and/or competence. #### Overview A reduction of trust in the Bank’s integrity and competence may reduce the attractiveness of the Bank to customers and clients and other stakeholders and could lead to negative publicity, loss of revenue, regulatory or legislative action, loss of existing and potential client business, reduce workforce morale and difficulties in recruiting talent. Ultimately it may destroy shareholder value. #### Organisation, roles and responsibilities The BBI Board is the most senior body responsible for reviewing and monitoring the effectiveness of the Bank’s management of reputation risk. The Conduct and Reputational Risk Committee, a subcommittee of the BBI Executive Committee, is dedicated to providing executive oversight of conduct and reputation risk and escalating to the Board as appropriate. The Group Chief Compliance Officer is accountable for developing a Reputation Risk Management Framework (‘RRMF’), and the Head of Public Policy and Corporate Responsibility is responsible for developing a reputation risk policy and associated standards, including tolerances against which data is monitored, reported on and escalated, as required. Reputation risk is by nature pervasive and can be difficult to quantify, requiring more subjective judgement than many other risks. RRMF sets out what is required to manage reputation risk across the Bank. The primary responsibility for identifying and managing reputation risk and adherence to the control requirements sits with the business and support functions where the risk arises. The Bank’s Chief Compliance Officer is responsible for providing independent second line oversight of the Business’ adherence to the RRMF. The Bank is required to operate within established reputation risk appetite, and the component businesses prepare reports highlighting their most significant current and potential reputation risks and issues and how they are being managed. These reports are a key internal source of information for the quarterly reputation risk reports which are prepared for the Conduct and Reputational Risk Committee and reviewed by the BBI Board. ### Legal risk management The risk of loss or imposition of penalties, damages or fines from the failure of the Bank to meet its legal obligations, including regulatory or contractual requirements. #### Overview The Bank has no tolerance for wilful breaches of laws, regulations or other legal obligations. However, the multitude of laws and regulations across the globe are highly dynamic and their application to particular circumstances is often unclear. This results in a high level of inherent legal risk which the Bank seeks to mitigate through the operation of a Barclays Group-wide legal risk management framework, which requires identification of legal risks by legal professionals, engagement of legal professionals in situations that have the potential for legal risk, and escalation of legal risk as necessary. Notwithstanding these mitigating actions, the Bank operates with a level of residual legal risk, for which the Bank has limited tolerance. #### Organisation, roles and responsibilities The Bank’s businesses and functions have responsibility for identifying and escalating to the Legal Function legal risk in their area, as well as responsibility for adherence to control requirements. The Legal function organisation and coverage model aligns legal expertise to businesses, functions, products, activities and geographic locations so that the Bank receives legal advice and support from appropriate legal professionals, working in partnership proactively to identify, manage and escalate legal risks as necessary. The Bank is supported specifically by the BBI General Counsel, who draws on the support of the wider Barclays Legal Function as appropriate. The senior management of the wider Barclays Legal Function oversees, challenges and monitors the legal risk profile and effectiveness of the legal risk control environment across the Barclays Group. The Legal Function does not sit in any of the three lines of defence but supports them all. Except in relation to the legal advice it provides or procures, the Legal Function is subject to oversight from the second line of defence. The Barclays Group General Counsel is responsible for developing and maintaining a Barclays Group-wide legal risk management framework. This includes defining the relevant legal risk policies, developing Barclays Group-wide risk appetite for legal risk, and oversight of the implementation of controls to manage and escalate legal risk. The legal risk profile and control environment is reviewed by management through business risk committees and control committees. The BBI Risk Committee is the most senior executive body responsible for reviewing and monitoring the effectiveness of risk management across the Bank. Escalation paths from this committee exist to the Barclays Group Risk Committee and BBI Board Risk Committee. --- # Risk review ## Climate risk performance All disclosures in this section pages 57 to 58, are unaudited unless otherwise stated. ### Climate risk performance The impact on Financial and Operational Risks arising from climate change through, physical risks, risks associated with transitioning to a lower carbon economy and connected risks arising as a result of second order impacts of these two drivers on portfolios. As part of climate risk performance, we monitor carbon-related assets and elevated risk sectors, which are identified as portfolios with 'elevated' exposure to the physical and transition risks of climate change. #### Carbon-related assets We disclose concentrations of credit exposure to carbon-related assets. The Task Force on Climate-related Financial Disclosures (‘TFCD’) recommends that carbon-related assets are those assets tied to the energy, transportation, materials and buildings and agriculture, food and forest products sectors. All of the sectors that the TCFD now considers to be carbon-related assets include the sectors that Barclays considers at elevated risk from the impacts of climate change. These can be found in the table on the following page. #### Elevated risk sectors Barclays is working to understand the risks associated with sectors sensitive to the impacts from climate change. Disclosing risk management metrics and quantitative credit exposures supports this approach and our ongoing alignment with the TCFD recommendations. The sectors highlighted blue in the table overleaf represent those that the Barclays Group (including BBI) considers at an elevated risk from the impacts of climate change. However, in each sector there will exist a range of vulnerabilities and as such these figures do not represent elevated carbon emission exposures and should not be interpreted as an indicator of relative carbon intensity. These sectors have been identified through an analysis of Barclays Industrial Classifications by portfolio and benchmarked against external sources, with additional input from subject matter experts. | Elevated risk sector | Drivers of risk | | :--- | :--- | | **Aviation** | More stringent air emission and carbon regulations, requiring high levels of capital investment and Research & Development (R&D) expenditure. | | **Automotive** | Policy pressure to cut emissions to meet emission requirements, requiring high levels of capital investment and R&D expenditure. Phase out of fossil fuel vehicles and introduction of low emission zones in city centres. | | **Cement** | Being one of the hard to abate sectors, policy pressure to cut emissions requires high levels of capital investment and R&D expenditure. | | **Coal Mining and Coal Terminals** | Reduction in demand of thermal coal, as utilities transition away from fossil fuel. More stringent air emissions regulation, resulting in higher levels of capital investment. | | **Chemicals** | Increasing environmental regulation, including carbon regulations. The increasing efforts to eliminate single-use plastics and improve recycling to prevent marine pollution could also impact demand for products used in plastic manufacture. | | **Mining (including diversified miners)** | Rising costs as a result of tighter environmental regulations and increasing water stress. | | **Oil and Gas** | Policy pressure to cut emissions, exposure to carbon taxes and overall increasing environmental regulation of operations and restrictions on access to new resources. Over time, falling demand for fossil fuels | | **Power Utilities** | Policy pressure to cut emissions, leading to increased capital expenditure costs, plus potential exposure to carbon taxes. | | **Agriculture** | Evolving taxation on emissions may impact production methods, supply chain and farm viability. Reduced demand for meat and dairy as a consequence of shifts in consumer behaviour. Volatile weather conditions and extreme weather events may impact farm credit quality. | | **Shipping** | Policy pressure to cut emissions, requiring higher levels of capital investment. | | **Steel** | Being an energy-intensive sector, the sector is exposed to the policy pressure to cut emissions and evolving air pollution regulation | | **Road Haulage** | Policy pressure to cut emissions, requiring high levels of capital investment. | --- ### Carbon-related assets (Incl. sub-sector breakdown) | | 2022 €m | | | 2021 €m | | | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | | Loans & advances | Loan commitments | Total | Loans & advances | Loan commitments | Total | | | **Agriculture, Food and Forest Products** | **210** | **1,006** | **1,216** | **226** | **1,064** | **1,290** | **(6%)** | | Agriculture | — | 75 | 75 | — | 77 | 77 | | | Food, Bev and Tobacco | 202 | 827 | 1,029 | 222 | 841 | 1,063 | | | Paper and Forest Products | 8 | 104 | 112 | 4 | 146 | 150 | | | **Energy** | **331** | **7,081** | **7,412** | **1,024** | **3,966** | **4,990** | **49%** | | Coal Mining and Coal Terminals | — | — | — | — | — | — | | | Oil and Gas | 157 | 2,544 | 2,701 | 605 | 1,409 | 2,014 | | | Power Utilities | 174 | 4,537 | 4,711 | 419 | 2,557 | 2,976 | | | **Materials and Building** | **786** | **5,256** | **6,042** | **510** | **4,747** | **5,256** | **15%** | | Cement | — | 2 | 2 | 1 | 152 | 153 | | | Chemicals | 100 | 1,283 | 1,383 | 74 | 1,126 | 1,200 | | | Construction and Materials | 118 | 643 | 761 | 102 | 772 | 874 | | | Homebuilding and Property Development | 27 | 68 | 95 | 46 | 101 | 147 | | | Manufacturing | 205 | 2,495 | 2,700 | 141 | 1,868 | 2,009 | | | Metals | 48 | 30 | 78 | 14 | — | 14 | | | Mining (Incl. diversified miners) | 22 | 64 | 86 | 1 | 19 | 20 | | | Packaging Manufacturers: Metal, Glass and Plastics | 5 | 39 | 44 | — | 45 | 45 | | | Real Estate Management and Development | 261 | 632 | 893 | 131 | 663 | 794 | | | Steel | — | — | — | — | — | — | | | **Transport** | **295** | **2,704** | **2,999** | **235** | **2,459** | **2,694** | **11%** | | Automotive | 106 | 1,959 | 2,065 | 14 | 1,808 | 1,822 | | | Aviation | 107 | 284 | 391 | 111 | 223 | 334 | | | Other Transport Services | 81 | 377 | 458 | 110 | 343 | 453 | | | Ports | — | — | — | — | — | — | | | Road Haulage | 1 | 84 | 85 | — | 85 | 85 | | | Shipping | — | — | — | — | — | — | | | **Subtotal (Elevated risk sectors)** | **667** | **10,832** | **11,499** | **1,225** | **7,456** | **8,681** | **32%** | | **Carbon-related Assets Grand Total** | **1,622** | **16,047** | **17,669** | **1,995** | **12,235** | **14,230** | **24%** | | **Total Loans & Advances & Loan Commitments** | **15,360** | **32,460** | **47,820** | **13,986** | **27,425** | **41,411** | **15%** | | **Carbon-related assets / Total Loans & Advances & Loan Commitments** | **11%** | **49%** | **37%** | **14%** | **45%** | **34%** | | --- # Risk review ## Credit risk performance All disclosures in this section pages 59 to 96, are unaudited unless otherwise stated. ### Overview Credit risk represents a significant risk to the Bank and mainly arises from exposure to wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered with clients. Credit risk disclosures include many of the recommendations of the Taskforce on Disclosures about Expected Credit Losses (‘DECL’) and it is expected that relevant disclosures will continue to be developed in future periods. ### Summary of performance in the period **Gross exposure:** Gross loans and advances at amortised cost to customers and banks have increased by €1.5bn compared to €14.4bn in 2021. This includes €1.4bn increase in wholesale lending and Treasury investments. Further, an increase of €0.6bn in Consumer Bank Europe offset by €0.6bn run-down in Italy Mortgages. Off balance sheet exposure have increased by €5.5bn compared to €29.9bn in 2021 primarily driven by growth in wholesale lending. **Maximum exposure:** During 2022, the Bank’s net exposure to credit risk increased by 16.5% to €95.9bn (2021: €82.4bn) which is mainly driven by increase in cash held at central banks (€6bn), off-balance sheet loan commitments (€5bn) and cash collateral and settlement balances (€1bn), all of which considered to be lower risk. Overall, the extent to which the Bank held mitigation against its total exposure remained broadly stable at 43% (2021: 44%). **Credit quality:** A gradual increase in delinquencies has been observed driven by resumption of more regular spend activity and deteriorating macroeconomic outlook. In wholesale, loans to high-risk sectors as well as the broader portfolio benefited from high-quality exposure and credit protection. Further analysis on the credit quality of assets is presented in the approach to management and representation of credit quality section. **Stage decomposition:** A net increase of €0.3bn is observed in Stage 2 gross exposures largely driven by increased PDs due to higher spend and a weaker macroeconomic forecast in credit cards and unsecured lending. Stage 3 balances are stable as compared to 2021. Refer to page 70 to 71 for further details. **Scenario:** During the year, the economic risk from the COVID-19 pandemic has receded; however, economic uncertainty linked to high inflation and heightened geopolitical tensions persists. For Q422, macroeconomic scenarios have been refreshed and are designed around a broad range of economic outcomes. **ECL:** ECL provisions increased by €110m from €477m to €587m, driven by higher impairment charge for the year primarily due to macroeconomic deterioration. On balance sheet coverage ratio for loans and advances to customers and banks increased from 3.1% in 2021 to 3.4% in 2022. **Charge:** Credit impairment charges (net) increased by €264m to a charge of €167m (2021: net release of €97m), driven by net increase in modelled impairment in response to the macroeconomic deterioration, partially offset by release of COVID related post-model adjustments. **Management adjustments:** Macroeconomic uncertainty PMAs at 31 December 2022 amount to €13m (2021: €80m). The reduction is informed by the release of COVID related uncertainty adjustments and macroeconomic deterioration captured within the model output. Refer to the Management adjustment to models for impairment section on page 72 to 73 for further details. **Climate:** Whilst there have been no separately identifiable charges relating to climate risk in the 2022 reported ECL, it is acknowledged that impairment could increase over time as climate risks become more tangible and impact consumers and clients through physical risk or via impacts from the transition to a low carbon economy. Further detail can be found in the Financial statements section in Note 8 Credit impairment charges/(releases). Description of terminology can be found in the glossary, available at home.barclays/annualreport. Refer to the credit risk management section for details of governance, policies and procedures. --- ### Maximum exposure and effects of netting, collateral and risk transfer #### Basis of preparation The following tables present a reconciliation between the Bank’s maximum exposure and net exposure to credit risk, reflecting the financial effects of risk mitigation reducing the Bank’s exposure. For financial assets recognised on the balance sheet, maximum exposure to credit risk represents the balance sheet carrying value after allowance for impairment. For off-balance sheet guarantees, the maximum exposure is the maximum amount that the Bank would have to pay if the guarantees were to be called upon. For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, the maximum exposure is the full amount of the committed facilities. This and subsequent analyses of credit risk exclude other financial assets not subject to credit risk. #### Collateral obtained Where collateral has been obtained in the event of default, the Bank does not, ordinarily, use such assets for its own operations and they are usually sold on a timely basis. The carrying value of assets held by the Bank as at 31 December 2022, as a result of the enforcement of collateral, was €nil (2021: €nil). --- ### Maximum exposure and effects of netting, collateral and risk transfer (audited) | As at 31 December 2022 | Maximum exposure €'m | Netting and set-off €'m | Cash collateral €'m | Non-cash collateral €'m | Risk transfer €'m | Net exposure €'m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **On-balance sheet:** | | | | | | | | Cash and balances at central banks | 30,540 | — | — | — | — | 30,540 | | Cash collateral and settlement balances | 18,540 | — | — | — | — | 18,540 | | Loans and advances at amortised cost: | | | | | | | | Home loans | 4,405 | — | — | (4,402) | — | 3 | | Credit cards, unsecured and other retail lending | 4,700 | — | (83) | (134) | (9) | 4,474 | | Wholesale loans | 4,843 | — | — | (662) | (2,141) | 2,040 | | Loans and advances to customers | 13,948 | — | (83) | (5,198) | (2,150) | 6,517 | | Loans and advances to banks | 1,412 | — | — | — | — | 1,412 | | Total loans and advances at amortised cost | 15,360 | — | (83) | (5,198) | (2,150) | 7,929 | | *Of which credit-impaired (Stage 3):* | | | | | | | | *Home loans* | *144* | *—* | *—* | *(144)* | *—* | *—* | | *Credit cards, unsecured and other retail lending* | *82* | *—* | *—* | *(43)* | *—* | *39* | | *Wholesale loans* | *120* | *—* | *—* | *(1)* | *(79)* | *40* | | *Total credit impaired loans and advances at amortised cost* | *346* | *—* | *—* | *(188)* | *(79)* | *79* | | Reverse repurchase agreements and other similar secured lending | 1,764 | — | — | (1,764) | — | — | | Trading portfolio assets: | | | | | | | | Debt securities | 7,307 | — | — | — | — | 7,307 | | Traded loans | 255 | — | — | — | (54) | 201 | | Total trading portfolio assets | 7,562 | — | — | — | (54) | 7,508 | | Financial assets at fair value through the income statement: | | | | | | | | Loans and advances | 1,767 | — | — | (323) | — | 1,444 | | Debt securities | 24 | — | — | — | — | 24 | | Reverse repurchase agreements | 15,423 | — | (887) | (14,536) | — | — | | Total financial assets at fair value through the income statement | 17,214 | — | (887) | (14,859) | — | 1,468 | | Derivative financial instruments | 40,439 | (23,787) | (12,797) | (1,651) | (1,496) | 708 | | Other assets | 377 | — | — | — | — | 377 | | **Total on-balance sheet** | **131,796** | **(23,787)** | **(13,767)** | **(23,472)** | **(3,700)** | **67,070** | | **Off-balance sheet:** | | | | | | | | Contingent liabilities and Financial Guarantees | 4,771 | — | (113) | (7) | (610) | 4,041 | | Loan commitments | 32,460 | — | (19) | (288) | (7,332) | 24,821 | | **Total off-balance sheet** | **37,231** | **—** | **(132)** | **(295)** | **(7,942)** | **28,862** | | **Total** | **169,027** | **(23,787)** | **(13,899)** | **(23,767)** | **(11,642)** | **95,932** | *Off-balance sheet exposures are shown gross of provisions of €46m (2021: €27m). See Note 25 for further details. In addition to the above, the Bank holds forward starting reverse repos amounting to €9.4bn (2021: €7.2bn). For further information on credit risk mitigation techniques, refer to the credit risk management section.* --- ### Maximum exposure and effects of netting, collateral and risk transfer (audited) | As at 31 December 2021 | Maximum exposure €'m | Netting and set-off €'m | Cash collateral €'m | Non-cash collateral €'m | Risk transfer €'m | Net exposure €'m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **On-balance sheet:** | | | | | | | | Cash and balances at central banks | 24,125 | — | — | — | — | 24,125 | | Cash collateral and settlement balances | 17,651 | — | — | — | — | 17,651 | | Loans and advances at amortised cost: | | | | | | | | Home loans | 4,951 | — | — | (4,941) | — | 10 | | Credit cards, unsecured and other retail lending | 4,154 | — | (45) | (133) | (25) | 3,951 | | Wholesale loans | 3,978 | — | — | (288) | (1,105) | 2,585 | | Loans and advances to customers | 13,083 | — | (45) | (5,362) | (1,130) | 6,546 | | Loans and advances to banks | 903 | — | — | — | — | 903 | | Total loans and advances at amortised cost | 13,986 | — | (45) | (5,362) | (1,130) | 7,449 | | *Of which credit-impaired (Stage 3):* | | | | | | | | *Home loans* | *155* | *—* | *—* | *(155)* | *—* | *—* | | *Credit cards, unsecured and other retail lending* | *120* | *—* | *—* | *(63)* | *—* | *57* | | *Wholesale loans* | *97* | *—* | *—* | *(3)* | *—* | *94* | | *Total credit impaired loans and advances at amortised cost* | *372* | *—* | *—* | *(221)* | *—* | *151* | | Reverse repurchase agreements and other similar secured lending | 3,228 | — | — | (3,228) | — | — | | Trading portfolio assets: | | | | | | | | Debt securities | 7,423 | — | — | — | — | 7,423 | | Traded loans | 638 | — | — | — | — | 638 | | Total trading portfolio assets | 8,061 | — | — | — | — | 8,061 | | Financial assets at fair value through the income statement: | | | | | | | | Loans and advances | 726 | — | — | (333) | — | 393 | | Debt securities | 24 | — | — | — | — | 24 | | Reverse repurchase agreements | 14,601 | — | (149) | (14,452) | — | — | | Total financial assets at fair value through the income statement | 15,351 | — | (149) | (14,785) | — | 417 | | Derivative financial instruments | 33,875 | (21,928) | (9,666) | (699) | (93) | 1,489 | | Other assets | 181 | — | — | — | — | 181 | | **Total on-balance sheet** | **116,458** | **(21,928)** | **(9,860)** | **(24,074)** | **(1,223)** | **59,373** | | **Off-balance sheet:** | | | | | | | | Contingent liabilities | 4,059 | — | — | (5) | (393) | 3,661 | | Loan commitments | 27,425 | — | (1) | (215) | (7,861) | 19,348 | | **Total off-balance sheet** | **31,484** | **—** | **(1)** | **(220)** | **(8,254)** | **23,009** | | **Total** | **147,942** | **(21,928)** | **(9,861)** | **(24,294)** | **(9,477)** | **82,382** | ### Expected Credit Losses #### Impairment allowance (audited) | As at 31 December | 2022 €m | 2021 €m | | :--- | :--- | :--- | | On loans and advances at amortised cost | 541 | 450 | | On loan commitments and financial guarantees | 46 | 27 | | **Total impairment allowance** | **587** | **477** | --- ### Loans and advances at amortised cost by product The table below presents a breakdown of loans and advances at amortised cost and the impairment allowance with stage allocation by asset classification. Impairment allowance under IFRS 9 considers both the drawn and the undrawn counterparty exposure. For retail portfolios, the total impairment allowance is allocated to the drawn exposure to the extent that the allowance does not exceed the exposure as ECL is not reported separately and any excess is reported on the liability side of the balance sheet as a provision. For wholesale portfolios the impairment allowance on the undrawn exposure is reported on the liability side of the balance sheet as a provision. #### Loans and advances at amortised cost by product (audited) | As at 31 December 2022 | Stage 1 €'m | Not past due €'m | Stage 2 <=30 days past due €'m | >30 days past due €'m | Total €'m | Stage 3 €'m | Total €'m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Gross exposure** | | | | | | | | | Home loans | 4,025 | 247 | 11 | 7 | 265 | 190 | 4,480 | | Credit cards, unsecured loans and other retail lending | 3,644 | 1,095 | 42 | 37 | 1,174 | 261 | 5,079 | | Wholesale loans | 4,032 | 711 | 27 | — | 738 | 158 | 4,928 | | Loans and advances to customers | 11,701 | 2,053 | 80 | 44 | 2,177 | 609 | 14,487 | | Loans and advances to banks | 1,394 | 18 | — | — | 18 | 2 | 1,414 | | **Total^a** | **13,095** | **2,071** | **80** | **44** | **2,195** | **611** | **15,901** | | **Impairment allowance** | | | | | | | | | Home loans | 3 | 23 | 2 | 1 | 26 | 46 | 75 | | Credit cards, unsecured loans and other retail lending | 41 | 139 | 8 | 12 | 159 | 179 | 379 | | Wholesale loans | 22 | 25 | — | — | 25 | 38 | 85 | | Loans and advances to customers | 66 | 187 | 10 | 13 | 210 | 263 | 539 | | Loans and advances to banks | — | — | — | — | — | 2 | 2 | | **Total^a** | **66** | **187** | **10** | **13** | **210** | **265** | **541** | | **Net exposure** | | | | | | | | | Home loans | 4,022 | 224 | 9 | 6 | 239 | 144 | 4,405 | | Credit cards, unsecured loans and other retail lending | 3,603 | 956 | 34 | 25 | 1,015 | 82 | 4,700 | | Wholesale loans | 4,010 | 686 | 27 | — | 713 | 120 | 4,843 | | Loans and advances to customers | 11,635 | 1,866 | 70 | 31 | 1,967 | 346 | 13,948 | | Loans and advances to banks | 1,394 | 18 | — | — | 18 | — | 1,412 | | **Total^a** | **13,029** | **1,884** | **70** | **31** | **1,985** | **346** | **15,360** | | **Coverage ratio** | **%** | **%** | **%** | **%** | **%** | **%** | **%** | | Home loans | 0.1 | 9.3 | 18.2 | 14.3 | 9.8 | 24.2 | 1.7 | | Credit cards, unsecured loans and other retail lending | 1.1 | 12.7 | 19.0 | 32.4 | 13.5 | 68.6 | 7.5 | | Wholesale loans | 0.5 | 3.5 | — | — | 3.4 | 24.1 | 1.7 | | Loans and advances to customers | 0.6 | 9.1 | 12.5 | 29.5 | 9.6 | 43.2 | 3.7 | | Loans and advances to banks | — | — | — | — | — | 100 | 0.1 | | **Total^a** | **0.5** | **9.0** | **12.5** | **29.5** | **9.6** | **43.4** | **3.4** | Italian home loans and advances at amortised cost reduced to €4.5bn (2021: €5.0bn) and continue to run-off since new bookings ceased in 2016. The portfolio is secured on residential property with an average balance weighted mark to market LTV of 57.4% (2021: 55.3%). At 31 December 2022, the book value of the portfolio where payment holidays remain in place was €19m (2021: €33m), representing 0.4% (2021: 0.7%) of the portfolio. --- #### Loans and advances at amortised cost by product (audited) | As at 31 December 2021 | Stage 1 €'m | Not past due €'m | Stage 2 <=30 days past due €'m | >30 days past due €'m | Total €'m | Stage 3 €'m | Total €'m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Gross exposure** | | | | | | | | | Home loans | 4,355 | 473 | 7 | 5 | 485 | 196 | 5,036 | | Credit cards, unsecured loans and other retail lending | 3,440 | 682 | 25 | 28 | 735 | 288 | 4,463 | | Wholesale loans | 3,214 | 383 | 10 | 293 | 686 | 134 | 4,034 | | Loans and advances to customers | 11,009 | 1,538 | 42 | 326 | 1,906 | 618 | 13,533 | | Loans and advances to banks | 895 | 8 | — | — | 8 | — | 903 | | **Total^a** | **11,904** | **1,546** | **42** | **326** | **1,914** | **618** | **14,436** | | **Impairment allowance** | | | | | | | | | Home loans | 3 | 38 | 2 | 1 | 41 | 41 | 85 | | Credit cards, unsecured loans and other retail lending | 27 | 100 | 5 | 9 | 114 | 168 | 309 | | Wholesale loans | 4 | 14 | — | 1 | 15 | 37 | 56 | | Loans and advances to customers | 34 | 152 | 7 | 11 | 170 | 246 | 450 | | Loans and advances to banks | — | — | — | — | — | — | — | | **Total^a** | **34** | **152** | **7** | **11** | **170** | **246** | **450** | | **Net exposure** | | | | | | | | | Home loans | 4,352 | 435 | 5 | 4 | 444 | 155 | 4,951 | | Credit cards, unsecured loans and other retail lending | 3,413 | 582 | 20 | 19 | 621 | 120 | 4,154 | | Wholesale loans | 3,210 | 369 | 10 | 292 | 671 | 97 | 3,978 | | Loans and advances to customers | 10,975 | 1,386 | 35 | 315 | 1,736 | 372 | 13,083 | | Loans and advances to banks | 895 | 8 | — | — | 8 | — | 903 | | **Total^a** | **11,870** | **1,394** | **35** | **315** | **1,744** | **372** | **13,986** | | **Coverage ratio** | **%** | **%** | **%** | **%** | **%** | **%** | **%** | | Home loans | 0.1 | 8.0 | 28.6 | 20.0 | 8.5 | 20.9 | 1.7 | | Credit cards, unsecured loans and other retail lending | 0.8 | 14.7 | 20.0 | 32.1 | 15.5 | 58.3 | 6.9 | | Wholesale loans | 0.1 | 3.7 | — | 0.3 | 2.2 | 27.6 | 1.4 | | Loans and advances to customers | 0.3 | 9.9 | 16.7 | 3.4 | 8.9 | 39.8 | 3.3 | | Loans and advances to banks | — | — | — | — | — | — | — | | **Total^a** | **0.3** | **9.8** | **16.7** | **3.4** | **8.9** | **39.8** | **3.1** | *Note* *a Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances and other assets. These have a total gross exposure of €18,972m (2021: €17,837m) and impairment allowance of €4m (2021: €4m). This comprises €nil (2021: €nil) impairment allowance on €18,968m (2021: €17,833m) Stage 1 assets and €4m (2021: €4m) on €4m (2021: €4m) Stage 3 other assets.* --- ### Movement in gross exposures and impairment allowance including provisions for loan commitments and financial guarantees The following tables present a reconciliation of the opening to the closing balance of the exposure and impairment allowance. An explanation of the methodology used to determine credit impairment provisions is included in Note 8. Transfers between stages in the tables have been reflected as if they had taken place at the beginning of the year. The movements are measured over a 12-month period. #### Loans and advances at amortised cost (audited) | | Stage 1 Gross €m | Stage 1 ECL €m | Stage 2 Gross €m | Stage 2 ECL €m | Stage 3 Gross €m | Stage 3 ECL €m | Total Gross €m | Total ECL €m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Home Loans** | | | | | | | | | | **As at 1 January 2022** | **4,355** | **3** | **485** | **41** | **196** | **41** | **5,036** | **85** | | Transfers from Stage 1 to Stage 2 | (136) | — | 136 | — | — | — | — | — | | Transfers from Stage 2 to Stage 1^a | 323 | 17 | (323) | (17) | — | — | — | — | | Transfers to Stage 3 | (13) | — | (27) | (4) | 40 | 4 | — | — | | Transfers from Stage 3 | — | — | 28 | 2 | (28) | (2) | — | — | | Business activity in the year^b | — | — | — | — | — | — | — | — | | Refinements to models used for calculations | — | — | — | — | — | — | — | — | | Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes | (298) | (17) | (17) | 6 | (7) | 7 | (322) | (4) | | Final repayments^c | (206) | — | (17) | (2) | (7) | — | (230) | (2) | | Disposals^d | — | — | — | — | — | — | — | — | | Write-offs^e | — | — | — | — | (4) | (4) | (4) | (4) | | **As at 31 December 2022^f** | **4,025** | **3** | **265** | **26** | **190** | **46** | **4,480** | **75** | | **Credit cards, unsecured loans and other retail lending** | | | | | | | | | | **As at 1 January 2022** | **3,440** | **27** | **735** | **114** | **288** | **168** | **4,463** | **309** | | Transfers from Stage 1 to Stage 2 | (453) | (6) | 453 | 6 | — | — | — | — | | Transfers from Stage 2 to Stage 1^a | 165 | 30 | (165) | (30) | — | — | — | — | | Transfers to Stage 3 | (48) | (2) | (45) | (12) | 93 | 14 | — | — | | Transfers from Stage 3 | 3 | 3 | 2 | 1 | (5) | (4) | — | — | | Business activity in the year^b | 1,358 | 15 | 78 | 12 | 11 | 8 | 1,447 | 35 | | Refinements to models used for calculations | — | — | — | — | — | — | — | — | | Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes | (324) | (20) | 125 | 69 | (15) | 66 | (214) | 115 | | Final repayments^c | (497) | (6) | (9) | (1) | (24) | (9) | (530) | (16) | | Disposals^d | — | — | — | — | (49) | (26) | (49) | (26) | | Write-offs^e | — | — | — | — | (38) | (38) | (38) | (38) | | **As at 31 December 2022^f** | **3,644** | **41** | **1,174** | **159** | **261** | **179** | **5,079** | **379** | | **Wholesale loans^g** | | | | | | | | | | **As at 1 January 2022** | **4,109** | **4** | **694** | **15** | **134** | **37** | **4,937** | **56** | | Transfers from Stage 1 to Stage 2 | (261) | (1) | 261 | 1 | — | — | — | — | | Transfers from Stage 2 to Stage 1^a | 383 | 6 | (383) | (6) | — | — | — | — | | Transfers to Stage 3 | — | — | (37) | (2) | 37 | 2 | — | — | | Transfers from Stage 3 | — | — | 18 | — | (18) | — | — | — | | Business activity in the year^b | 1,923 | 5 | 162 | 3 | 3 | 2 | 2,088 | 10 | | Refinements to models used for calculations | — | — | — | — | — | — | — | — | | Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes | 487 | 8 | 137 | 17 | 16 | 7 | 640 | 32 | | Final repayments^c | (1,215) | — | (59) | (3) | (4) | — | (1,278) | (3) | | Disposals^d | — | — | (37) | — | — | — | (37) | — | | Write-offs^e | — | — | — | — | (8) | (8) | (8) | (8) | | **As at 31 December 2022^f** | **5,426** | **22** | **756** | **25** | **160** | **40** | **6,342** | **87** | --- | Loans and advances at amortised cost (audited) | Stage 1 Gross €m | Stage 1 ECL €m | Stage 2 Gross €m | Stage 2 ECL €m | Stage 3 Gross €m | Stage 3 ECL €m | Total Gross €m | Total ECL €m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Loans and advance to banks | 1,394 | — | 18 | — | 2 | 2 | 1,414 | 2 | | Loans and advance to customers | 11,701 | 66 | 2,177 | 210 | 609 | 263 | 14,487 | 539 | | **Total** | **13,095** | **66** | **2,195** | **210** | **611** | **265** | **15,901** | **541** | *Notes* *a Exposures will move back to Stage 1 once they no longer meet the criteria for a significant increase in credit risk. This means that, at minimum: all payments must be up-to-date, the PD deterioration test is no longer met, the account is no longer classified as high risk, and the customer has evidenced an ability to maintain future payments.* *b Business activity in the year does not include additional drawdowns on the existing facility which are reported under ‘Net drawdowns, repayments, net re measurement and movements due to exposure and risk parameter changes’.* *c Final repayments include repayment from the facility closed during the year whereas partial repayments from existing facility are reported under ‘Net drawdowns, repayments, net remeasurement and movements due to exposure and risk parameter changes’.* *d The €49m (2021: €43m) disposal reported within Credit cards, unsecured loans and other retail lending portfolio relates to debt sales undertaken during the year. The €37m (2021: €32) disposals reported within Wholesale loans relates to debt sales.* *e In 2022, gross write-offs amounted to €50m (2021: €39m) and post write-off recoveries of €1m (2021: €1m). Net write-offs after applying recoveries amounted to €49m (2021: €38m).* *f Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances and other assets. These have a total gross exposure of €18,972m (2021: €17,837m) and impairment allowance of €4m (2021: €4m). This comprises €nil (2021: €nil) impairment allowance on €18,968m (2021: €17,833m) Stage 1 assets and €4m (2021: €4m) on €4m (2021: €4m) Stage 3 other assets.* *g Includes Loans and advances to Banks of €1,394m in stage 1 (2021: €895m), €18m in stage 2 (2021: €8m) and €2m in stage 3 (2021: €nil).* | Reconciliation of ECL movement to credit impairment charge/(release) for the period (audited) | Stage 1 €m | Stage 2 €m | Stage 3 €m | Total €m | | :--- | :--- | :--- | :--- | :--- | | Home loans | — | (15) | 9 | (6) | | Credit cards, unsecured loans and other retail lending | 14 | 45 | 75 | 134 | | Wholesale loans | 18 | 10 | 11 | 39 | | **ECL movement excluding assets derecognised due to disposals and write-offs** | **32** | **40** | **95** | **167** | | ECL movement on loan commitments and financial guarantees | 3 | 16 | — | 19 | | ECL movement on other financial assets^a | — | — | — | — | | Recoveries and reimbursements^b | (10) | (18) | 1 | (27) | | Total exchange and other adjustments^c | | | | 8 | | **Total credit impairment charge for the year** | | | | **167** | *Notes* *a Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances and other assets. These have a total gross exposure of €18,972m (2021: €17,837m) and impairment allowance of €4m (2021: €4m). This comprises €nil (2021: €nil) impairment allowance on €18,968m (2021: €17,833m) Stage 1 assets and €4m (2021: €4m) on €4m (2021: €4m) Stage 3 other assets.* *b Recoveries and reimbursements includes €26m (2021: €16m reduction) for reimbursements from financial guarantee contracts held with third parties through Barclays Bank PLC and cash recoveries of previously written off amounts of €1m (2021: €1m).* *c Includes foreign exchange and interest and fees in suspense.* --- ### Loan commitments and financial guarantees (audited) | | Stage 1 Gross €m | Stage 1 ECL €m | Stage 2 Gross €m | Stage 2 ECL €m | Stage 3 Gross €m | Stage 3 ECL €m | Total Gross €m | Total ECL €m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Credit cards, unsecured loans and other retail lending** | | | | | | | | | | **As at 1 January 2022** | **5,393** | **—** | **291** | **—** | **14** | **—** | **5,698** | **—** | | Net transfers between stages | (191) | — | 183 | — | 8 | — | — | — | | Business activity in the year | 732 | — | 8 | — | — | — | 740 | — | | Net drawdowns and repayments, net re-measurement and movement due to exposure and risk parameter changes | 99 | — | (62) | — | (11) | — | 26 | — | | Limit management and final repayments | (77) | — | — | — | — | — | (77) | — | | **As at 31 December 2022** | **5,956** | **—** | **420** | **—** | **11** | **—** | **6,387** | **—** | | **Wholesale loans** | | | | | | | | | | **As at 1 January 2022** | **21,572** | **18** | **2,621** | **9** | **70** | **—** | **24,263** | **27** | | Net transfers between stages | (664) | 3 | 669 | (3) | (5) | — | — | — | | Business activity in the year | 2,945 | 3 | 865 | 4 | 1 | — | 3,811 | 7 | | Net drawdowns and repayments, net re-measurement and movement due to exposure and risk parameter changes | 3,389 | (3) | 563 | 17 | (1) | — | 3,951 | 14 | | Limit management and final repayments | (2,683) | — | (211) | (2) | (16) | — | (2,910) | (2) | | **As at 31 December 2022** | **24,559** | **21** | **4,507** | **25** | **49** | **—** | **29,115** | **46** | There were no loan commitments or financial guarantees for home loans during 2022. --- ### Loans and advances at amortised cost (audited) | | Stage 1 Gross €m | Stage 1 ECL €m | Stage 2 Gross €m | Stage 2 ECL €m | Stage 3 Gross €m | Stage 3 ECL €m | Total Gross €m | Total ECL €m | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Home loans** | | | | | | | | | | **As at 1 January 2021** | **4,673** | **5** | **768** | **55** | **217** | **38** | **5,658** | **98** | | Acquisitions | — | — | — | — | — | — | — | — | | Transfers from Stage 1 to Stage 2 | (79) | — | 79 | — | — | — | — | — | | Transfers from Stage 2 to Stage 1^a | 322 | 24 | (322) | (24) | — | — | — | — | | Transfers to Stage 3 | (14) | — | (30) | (5) | 44 | 5 | — | — | | Transfers from Stage 3 | 7 | — | 36 | 2 | (43) | (2) | — | — | | Business activity in the year^b | — | — | — | — | — | — | — | — | | Refinements to models used for calculations^c | — | — | — | (1) | — | 10 | — | 9 | | Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes | (316) | (26) | (23) | 15 | (12) | (6) | (351) | (17) | | Final repayments^d | (238) | — | (23) | (1) | (7) | (1) | (268) | (2) | | Disposals^e | — | — | — | — | — | — | — | — | | Write-offs^f | — | — | — | — | (3) | (3) | (3) | (3) | | **As at 31 December 2021^g** | **4,355** | **3** | **485** | **41** | **196** | **41** | **5,036** | **85** | | **Credit cards, unsecured loans and other retail lending** | | | | | | | | | | **As at 1 January 2021** | **2,753** | **28** | **983** | **199** | **30