# Barclays Bank UK PLC ## Annual Report ### 31 December 2018 --- ## Content ### Strategic Report - Overview 1 - Strategy 1 - Business model 1 - Market and operating environment 1 - Risks to the operating model 1 - Key highlights of the year 2 - Risk management 5 - Performance measures 7 ### Governance - Chairman’s introduction 10 - Corporate Governance statement 12 - Directors’ report 16 - People 19 ### Risk review - Risk review contents 21 - Risk management 23 - Material existing and emerging risks 26 - Principal Risk management 33 - Risk performance 48 - Supervision and regulation 91 ### Financial statements - Financial statements contents 97 - Consolidated financial statements 106 - Notes to the financial statements 114 --- ## Strategic Report: Performance review The Strategic report was approved by the Board of Directors on 20 February 2019 and signed on their behalf by the Chairman. ### Overview Barclays Bank UK PLC was established to meet the regulatory ring-fencing requirements in accordance with the Financial Services (Banking Reform) Act 2013 and related legislation. The set-up of the ring-fenced bank involved the transfer to Barclays Bank UK PLC of employees, businesses and various legal entities connected with the UK banking business. Following the stand-up of the ring-fenced bank, consolidated statutory financial statements have been produced for Barclays Bank UK Group for the first time. In September 2017, c.25,000 colleagues were legally transferred to Barclays Bank UK PLC and subsequently seconded back to Barclays Bank PLC until 1 April 2018, the date of the stand-up of the ring-fenced bank. The majority of entity and business transfers comprising 24 million customers and clients, combined with £254bn of assets, took place in 2018. The UK banking business, largely comprising of Personal Banking, Barclaycard Consumer UK and Business Banking, was transferred from Barclays Bank PLC to Barclays Bank UK PLC under the single ring-fencing transfer scheme. The total net assets transferred to Barclays Bank UK PLC were £16.2bn. Net assets of £13.0bn were transferred in exchange for three ordinary shares issued by Barclays Bank UK PLC and the remaining assets were transferred for no consideration. As a result of the transfer the share capital, reserves and other equity instruments of Barclays Bank UK PLC increased by £16.2bn. The legal entity Barclays Bank UK PLC is the wholly-owned ring-fenced bank of Barclays PLC. Barclays UK refers to businesses of Barclays Bank UK PLC and its subsidiaries, comprised largely of Personal Banking, Barclaycard Consumer UK and Business Banking. ### Strategy Our strategy is centred on building long term, meaningful relationships with our customers. This is achieved through colleagues, empowered by technology, passionate about the customer, delivering perfect and personalised experiences to help customers move forward with confidence, every day. The Barclays PLC Group purpose is Creating Opportunities to Rise. In Barclays Bank UK Group we express this as #letsgoforward – helping people move forward and do the things they want to do, with confidence, every day. ### Business Model Barclays Bank UK PLC’s ring-fenced UK bank business model offers products and services designed for UK retail and business customers, and provides Barclays PLC’s shareholders a mix of revenue streams that benefit from different stages of the economic cycle, and wider financial and non-financial value for our stakeholders. Our Personal Banking business includes Community and Premier Banking, as well as Savings, Investments & Wealth Management. Barclaycard Consumer UK is a leading credit card provider, offering flexible borrowing and payment solutions. Business Banking serves a spectrum of clients, from high growth start-ups to small and medium-sized enterprises (SMEs) who need specialist advice, products and services. | Customers and clients | Products and Services | Value Creation | Contribution to the Barclays Group | | :--- | :--- | :--- | :--- | | - Individuals
- SMEs | - Personal banking services
- Credit cards and transactional lending
- Mortgages and secured lending
- Investment products and services
- Business banking solutions | - To our customers and clients - Building meaningful relationships to provide relevant and personalised financial solutions
- To society - Helping communities move forward
- To Barclays Group - Ring fenced UK bank, providing sustainable returns and prudent balance growth | - Income: £5,606m
- PBT: £1,548m | ### Market and operating environment The current political and economic environment poses a number of challenges through the impact on our customers of continuing uncertainty, modest economic growth and volatile exchange rates, while ongoing low interest rates constrain overall profitability. Against this backdrop, competition, customer behaviour and regulatory expectations continue to evolve rapidly, requiring a high degree of business change. Barclays Bank UK Group, however, continues to deliver solid financial performance, with profit before tax of £1,548m. This has been achieved through the delivery of customer-centric solutions and franchise-led deposit growth, matched by low risk, high quality secured asset growth while maintaining a stable net interest margin. ### Risks to the operating model The uncertainty around Brexit has been a challenge throughout 2018 and remains so, impacting both customer confidence and the market environment. We closely monitor the environment in which we operate and key indicators within our business, while proactively planning for numerous potential outcomes, in order to minimise the risks associated with the UK’s withdrawal from the European Union. We remain conservative in our outlook, supported by our strong risk management framework and oversight. The threats of organised crime and cyber-attacks remain key risks to our operating model and we invest to ensure the operational resilience and reliability of our technological infrastructure, while simplifying our technological estate in order to remain agile and drive technological advancement for the benefit of our customers. We remain focused on reducing the volume of operational incidents through continued investment in our technology and controls. The volume of operational incidents caused by technology are becoming less frequent across Barclays Group year-on-year, with a 13% reduction in the last 12 months. Where incidents do occur, we are resolutely focused on minimising any impact on customers. There have been a number of significant regulatory developments around retail banking business models and pricing in 2018 that have the potential to impact our business models going forward, while potential new market entrants such as Fintechs and established large technology companies threaten to take market share from traditional banks. As the deadline for Payment Protection Insurance (PPI) enquiries approaches, we continue to monitor responses and resource appropriately for any increase in the lead up to the August 2019 date, in order to ensure the right outcomes for our customers. ### Key highlights of the year Throughout 2018, we have demonstrated our position as leaders in innovation, providing customers with solutions to better serve their financial needs. Through automation and digitisation, over half of the products we delivered in 2018 were taken out digitally and 90% of our service transactions are now completed in a self-service fashion by our customers. We have continued to develop the capabilities of our mobile banking app, Barclays Mobile Banking (BMB) to allow our customers to manage their finances more easily and effectively, with BMB becoming the most used banking app in the UK (eBenchmarkers). We now have around 10.8 million digitally active customers across mobile and online banking, around 5 million of whom are digital only. We are proud to be the first major UK high street bank to allow customers to aggregate their other current accounts into our mobile banking app through Open Banking API technology, meaning that customers do not have to share their online banking log-in credentials with us in order to do this. We will continue to harness the opportunities that Open Banking provides in order to deliver new and exciting applications for our customers in the future. By focusing our efforts on improving the end-to-end journeys for our customers, we have reduced the number of complaints we receive. Despite this, the level of complaints we receive is too high and reducing them further will be a key priority for us in 2019. This year has seen further progress in ensuring we continue to properly support older, disabled or potentially vulnerable customers. A number of new services were launched including; the ability for deaf customers to contact us by telephone with the assistance of a third party interpreter, an online support page for people experiencing mental health concerns and a wide-range of considerations for older customers including fraud & scams awareness and accessible banking services. We are investing in personalised ways to support customers who are showing that they may be experiencing early stages of financial stress. Enabled by a new sophisticated data engine, we have developed a suite of tailored contact to direct customers towards tools and information that could help them improve their financial health. We have already helped over 6.7 million young people develop the core, transferable skills they need for the world of work through our LifeSkills program and we have committed to upskill another ten million people over the next five years to support all generations, across the whole of the UK. --- ## Governance ### Chairman’s introduction I am very pleased to present our first full Annual Report and Accounts as a ring-fenced entity. I am particularly grateful to the new members of the Board, both for agreeing to join us in what is still an emerging regulatory structure and for their contribution to date as we have started to work together. We have a strong combination of technical and financial skills with broader business experience in culture, colleague engagement and technology. The new challenges of modern banking make it especially important to understand the wider external strategic landscape and the Board are focused on how we can help navigate this in order to deliver our mission of #letsgoforward. ### Board Activities The year has been a very busy one for the business, with significant focus on the establishment of Barclays Bank UK PLC as the UK’s first major ring-fenced bank and the development and execution of our strategy. We began the year by overseeing the transfer of the UK banking business of the Barclays PLC Group to Barclays Bank UK PLC and the implementation of a governance framework that enables the Barclays Bank UK Group to meet its regulatory requirements, operate independently within the Barclays Group and devise its own strategy. Internal control, risk and compliance functions were also established, with appropriate supporting policies and procedures. This framework underpins our absolute commitment to ensuring the Barclays Bank UK Group is able to meet its regulatory obligations and maintain an open dialogue with our regulators. Directors have spent considerable time, both inside and outside of formal meetings, familiarising themselves with the business and discussing our Strategy and Medium Term Business Plan. The resilience of Barclays Bank UK Group’s technology has been an area of focus, with reports regularly discussed at Board meetings. Barclays Bank UK PLC has introduced a protocol that requires Directors to be notified immediately in the event of a significant outage. We have also looked carefully at Barclays Bank UK Group’s plans to minimise the impact on customers of the UK leaving the European Union. The Board plays a critical role in setting the tone from the top and is actively involved in setting an open, positive culture that supports its strategy and adheres to the highest standards of conduct. We have discussed talent, engagement and culture plans and have reviewed dashboards and other data to ensure we are making real progress. The Board will receive further presentations on these topics from the CEO and Human Resources team during the early part of 2019, with roll out to the wider business expected soon after approval of these plans by the Board. The Board was updated on key ongoing issues for the business, including PPI claims, the adoption of the new IFRS 9 accounting standard and regulatory matters. As the PPI regime begins to draw to a close we are determined not to have any repetition of that experience. The Board also reviewed and approved the Barclays Bank UK Group’s Reward Policy, following a recommendation from the Remuneration Committee. ### Board Composition The recruitment of the Board was completed earlier in the year. It now comprises seven independent non-executive directors, two executive directors and myself as Chairman. I also remain a director of Barclays PLC. Appointments of non-executive directors to the Board were made via a formal, rigorous and transparent process, with each role being publicly advertised. Each appointment was based on merit, taking into account the skills, experience and diversity needs of the Board. The recruitment of seven new directors over a relatively short period necessitated a comprehensive induction programme. Further details are set out in the Training and Induction section of the Corporate Governance Statement. Directors visited a number of branches and sites and received presentations from all significant business units. We also received briefings on the legal and regulatory environment in which Barclays Bank UK Group operates, our responsibilities and the significance of Barclays Bank UK Group to the UK economy and to society more generally. Familiarisation with the business will continue this year with further visits and presentations planned. ### Board Effectiveness We as a Board take very seriously our obligation to provide rigorous and constructive challenge to management on significant matters. The skills, knowledge and experience needed for an effective Board are recorded in a skills matrix, which has been used by the Board to inform non-executive recruitment, induction and ongoing development. The Nominations Committee will consider Board and senior management succession plans in more detail over the coming year. The Barclays’ Charter of Expectations sets out role profiles and time commitments for all key Board positions and states the expectations and responsibilities for all directors. It also puts processes in place to ensure that the Board is provided with the accurate, timely and high-quality information that it needs to fulfil its duties. The effectiveness of the Board will be evaluated by a leading independent evaluator in the coming year. ### Risk We also take very seriously our responsibility for setting Barclays Bank UK Group’s risk appetite, that is, the level of risk it is prepared to take in the context of achieving its strategic objectives. The Barclays Bank UK Group’s ERMF is designed to identify and set minimum requirements in respect of the main risks to achieving its strategic objectives and to provide reasonable assurance that internal controls are effective. Assisted by our Risk Committee, we conduct robust assessments of the principal risks facing the Barclays Bank UK Group, including those that would threaten its business model, future performance, solvency or liquidity. The Audit Committees of Barclays Bank UK Group and the wider Barclays PLC Group oversee the effectiveness of Barclays Bank UK Group’s internal and external auditors. ### Relationship with the Barclays Group and Our Regulators We operate as a wholly owned subsidiary of Barclays PLC, with a single line of executive management. We are very conscious of the need to avoid unnecessary duplication or costs of complexity. Barclays Bank UK PLC inputs into the development of Group strategy, however, we aim to adhere to one set of Barclays Group-wide rules for frameworks, policies and standards, unless local laws, regulations, or ring fencing obligations prohibit it. The Barclays Bank UK PLC Board oversees the management and performance of Barclays Bank UK Group’s business, its governance, controls, compliance and execution of its strategy, in accordance with our legal and regulatory responsibilities. The Barclays Bank UK PLC Board and Committee Chairs as well as Barclays Bank UK PLC’s Senior Executives have met with Barclays Bank UK PLC’s regulators many times during the year. Their engagement and constructive approach to the stewardship of the Barclays Bank UK Group’s business is welcomed. ### Our Colleagues On behalf of the Barclays Bank UK Board I wanted to congratulate the teams across the whole business for delivering a strong returns performance in 2018, despite an uncertain environment. While this reflects the strengths of our brands, technical expertise and our strategy, it is ultimately down to the human element in our business. We will continue to look for stretching performance targets, starting with our colleagues’ engagement, which, we know, will then reflect in our customer preference scores. Together with good cost controls this will ultimately deliver strong returns for shareholders. We will continue this balanced and long-term approach to managing the business. A more detailed summary of the activity of the Board and its Committees follows. Sir Ian Cheshire Chairman – Barclays Bank UK PLC 20 February 2019 --- ## Financial Statements ### Consolidated Income Statement (See PDF page 108) --- ## Notes to the financial statements ### 1 Significant accounting policies ... ... ### 2 Acquisition of business (See PDF page 121) --- *(Note: The provided PDF/OCR content includes extensive detailed notes and risk disclosures. As per the instructions, these have been parsed faithfully.)*