Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 279 report information sustainability report Governance review review statements Annual Report 2022 Material existing and emerging risks (continued) i) Estimates and judgements relating to minimum tax on adjusted financial data. For instance, the quality of the data critical accounting policies and statement income effective from 1 used in models across the Group has a regulatory disclosures January 2023. These new tax regimes may material impact on the accuracy and require systems and process changes. Any completeness of its risk and financial The preparation of financial statements systems and process changes introduce metrics. Model uncertainty, errors and requires the application of accounting additional operational risk. inappropriate use may result in (among policies and judgements to be made in k) Ability to hire and retain appropriately other things) the Group making accordance with IFRS. Regulatory returns qualified employees inappropriate business decisions and/or and capital disclosures are prepared in As a regulated financial institution, the inaccuracies or errors in the Group’s risk accordance with the relevant capital Group requires diversified and specialist management and regulatory reporting reporting requirements and also require skilled colleagues. The Group’s ability to processes. This could result in significant assumptions and estimates to be made. attract, develop and retain a diverse mix of financial loss, imposition of additional The key areas involving a higher degree of talent is key to the delivery of its core capital requirements, enhanced regulatory judgement or complexity, or areas where business activity and strategy. This is supervision and reputational damage, all of assumptions are significant to the impacted by a range of external and which could have a material adverse effect consolidated and individual financial internal factors, such as macroeconomic on the Group’s business, results of statements, include credit impairment factors, labour and immigration policy in operations, financial condition and provisions, taxes, fair value of financial the jurisdictions in which the Group prospects. instruments, goodwill and intangible operates, industry-wide headcount assets, pensions and post-retirement For further details on the Group’s approach + to model risk, refer to the model risk reductions in particular sectors, regulatory benefits, and provisions including conduct management and model risk performance limits on compensation for senior and legal, competition and regulatory sections. executives and the potential effects on matters (refer to the notes to the audited employee engagement and wellbeing from financial statements for further details). vii) Conduct risk long-term periods of working remotely. There is a risk that if the judgement Conduct risk is the risk of poor outcomes Failure to attract or prevent the departure exercised, or the estimates or for, or harm to, customers, clients and of appropriately qualified and skilled assumptions used, subsequently turn out markets, arising from the delivery of the employees could have a material adverse to be incorrect, this could result in material Group's products and services. This risk effect on the Group’s business, results of losses to the Group, beyond what was could manifest itself in a variety of ways, operations, financial condition and anticipated or provided for. Further including: prospects. Additionally, this may result in development of accounting standards and a) Market conduct disruption to service which could in turn regulatory interpretations could also The Group’s businesses are exposed to lead to customer detriment and materially impact the Group’s results of risk from potential non-compliance with its reputational damage. operations, financial condition and policies and standards and instances of prospects. For further details on the Group’s approach wilful and negligent misconduct by + to operational risk, refer to the operational j) Tax risk risk management and operational risk employees, all of which could result in performance sections. The Group is required to comply with the potential customer and client detriment, domestic and international tax laws and enforcement action (including regulatory vi) Model risk practice of all countries in which it has fines and/or sanctions), increased business operations. There is a risk that Model risk is the potential for adverse operation and compliance costs, redress the Group could suffer losses due to consequences from decisions based on or remediation or reputational damage additional tax charges, other financial costs incorrect or misused model outputs and which in turn could have a material adverse or reputational damage as a result of failing reports. The Group relies on models to effect on the Group’s business, financial to comply with such laws and practice support a broad range of business and risk condition and prospects. Examples of (including where the Group’s interpretation management activities, including informing employee misconduct which could have a of such laws differs from the interpretation business decisions and strategies, material adverse effect on the Group’s of tax authorities), or by failing to manage measuring and limiting risk, valuing business include: (i) improperly selling or its tax affairs in an appropriate manner, exposures (including the calculation of with much of this risk attributable to the marketing the Group’s products and impairment), conducting stress testing, international structure of the Group. In services; (ii) engaging in insider trading, calculating RWAs and assessing capital addition, the introduction of new market manipulation or unauthorised adequacy, supporting new business international tax regimes, increasing tax trading; or (iii) misappropriating acceptance, risk and reward evaluation, authority focus on reporting and disclosure confidential or proprietary information requirements around the world as well as managing client assets, and meeting belonging to the Group, its customers or the digitisation of the administration of tax reporting requirements. third parties. These risks may be have the potential to increase the Group’s Models are, by their nature, imperfect exacerbated in circumstances where the tax compliance obligations further. The representations of reality and have some Group is unable to rely on physical OECD and G20 Inclusive Framework on degree of uncertainty because they rely on oversight and supervision of employees, Base Erosion and Profit Shifting has assumptions and inputs, and so are subject noting the move to a hybrid working model announced plans to introduce a global to intrinsic uncertainty, errors and for many colleagues. minimum tax from 2023. UK legislation to inappropriate use affecting the accuracy of implement these rules is expected to apply b) Customer protection their outputs. This may be exacerbated from 1 January 2024 which will increase The Group must ensure that its when dealing with unprecedented the Group's tax compliance obligations. In customers, particularly those that are addition, the US enacted the Inflation scenarios, as was the case during the vulnerable, are able to make well-informed Reduction Act in August 2022 which COVID-19 pandemic, due to the lack of decisions on how best to use the Group’s introduced a corporate alternative reliable historical reference points and