Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 272 report information sustainability report Governance review review statements Annual Report 2022 Material existing and emerging risks (continued) material risk to financial services discontinuation of certain reference rates • Litigation risk: members of the Group companies located in other countries, (including LIBOR), and the introduction of may face legal proceedings, regulatory which impact the Group’s ability to implementing legislation and regulations. investigations and/or other actions or implement globally consistent and Specifically, certain LIBOR tenors either proceedings regarding (among other efficient operating models; ceased at the end of 2021 or became things): (i) the conduct risks identified permanently unrepresentative. above, (ii) the interpretation and • financial crime, fraud and market abuse Furthermore, certain US dollar LIBOR enforceability of provisions in LIBOR- standards and increasing expectations tenors are to cease by the end of June based contracts and securities, and (iii) for related control frameworks, to 2023, and restrictions have been imposed the Group’s preparation and readiness ensure firms are adapting to new threats on new use of US dollar LIBOR. for the replacement of LIBOR with such as those arising from the Notwithstanding these developments, alternative RFRs. COVID-19 pandemic, and are given the unpredictable consequences of protecting customers from cyber- • Financial risk: the valuation of certain of benchmark reform, any of these enabled crime; the Group’s financial assets and liabilities developments could have an adverse may change. Moreover, transitioning to • the application and enforcement of impact on market participants, including alternative RFRs may impact the ability economic sanctions including those with the Group, in respect of any financial of members of the Group to calculate extra-territorial effect and those arising instruments linked to, or referencing, any and model amounts receivable by them from geopolitical tensions; of these benchmark interest rates. on certain financial assets and determine • requirements flowing from Uncertainty associated with such potential the amounts payable on certain financial arrangements for the resolution changes, including the availability and/or liabilities (such as debt securities issued strategy of the Group and its individual suitability of alternative RFRs, the by them) because certain alternative operating entities that may have participation of customers and third party RFRs (such as the Sterling Overnight different effects in different countries; market participants in the transition Index Average (SONIA) and the Secured process, challenges with respect to • the increasing regulatory expectations Overnight Financing Rate (SOFR)) are required documentation changes, and and requirements relating to various look-back rates whereas term rates impact of legislation to deal with certain aspects of operational resilience, (such as LIBOR) allow borrowers to legacy contracts that cannot convert into including an increasing focus on the calculate at the start of any interest or add fall-back RFRs before cessation of response of institutions to operational period exactly how much is payable at the benchmark they reference, may disruptions; the end of such interest period. This may adversely affect a broad range of have a material adverse effect on the • continuing regulatory focus on data transactions (including any securities, Group’s cash flows. privacy, including the collection and use loans and derivatives which use LIBOR or of personal data, and protection against • Pricing risk: changes to existing any other affected benchmark to loss and unauthorised or improper reference rates and indices, determine the interest payable which are access; discontinuation of any reference rate or included in the Group’s financial assets and • the regulatory focus on policies and indices and transition to alternative liabilities) that use these reference rates procedures for identifying and managing RFRs may impact the pricing and indices, and present a number of risks cybersecurity risks, cybersecurity mechanisms used by the Group on for the Group, including but not limited to: governance and the corresponding certain transactions. • Conduct risk: in undertaking actions to disclosure and reporting obligations; and • Operational risk: changes to existing transition away from using certain • continuing regulatory focus on the reference rates and indices, reference rates (such as LIBOR) to new effectiveness of internal controls and discontinuation of any reference rate or alternative RFRs, the Group faces risk management frameworks, as index and transition to alternative RFRs conduct risks. These may lead to evidenced in regulatory fines and other may require changes to the Group’s IT customer complaints, regulatory measures imposed against the Group systems, trade reporting infrastructure, sanctions or reputational impact if the and other financial institutions. operational processes, and controls. In Group is considered to be (among other addition, if any reference rate or index For further details on the regulatory supervision of, things): (i) undertaking market activities + and regulations applicable to, the Group, refer to the (such as LIBOR) is no longer available to that are manipulative or create a false or Supervision and regulation section on page 370. calculate amounts payable, the Group misleading impression; (ii) misusing may incur additional expenses in sensitive information or not identifying vi) Impact of benchmark interest rate amending documentation for new and reforms on the Group or appropriately managing or mitigating existing transactions and/or effecting conflicts of interest; (iii) providing Global regulators and central banks in the the transition from the original customers with inadequate advice, UK, the US and the EU have driven reference rate or index to a new misleading information, unsuitable international efforts to reform key reference rate or index. products or unacceptable service; (iv) benchmark interest rates and indices, such not taking a consistent approach to • Accounting risk: an inability to apply as the London Interbank Offered Rate remediation for customers in similar hedge accounting in accordance with (LIBOR), used to determine the amounts circumstances; (v) unduly delaying the IAS 39 could lead to increased volatility payable under a wide range of transactions communication and migration activities in the Group’s financial results and and make them more reliable and robust. in relation to client exposure, leaving performance. These benchmark reforms have resulted in them insufficient time to prepare; or (vi) significant changes to the methodology Any of these factors may have a material colluding or inappropriately sharing and operation of certain benchmarks and adverse effect on the Group’s business, information with competitors. indices, the adoption of alternative risk- results of operations, financial condition, free reference rates (RFRs), the prospects and reputation.