According to the UK government, to explain the financial crisis purely in terms of global trends ignores the fundamentally important point that there were real and significant failings in the UK regulatory framework. In particular the UK's regulatory system failed to recognise and respond to the problems that were emerging in the UK's financial system.

In response to these failings, the government has long supported fundamental changes to the UK's regulatory framework, particularly giving the Bank of England (BoE) a greater role.

In July, the government published its first consultation paper on reforming the UK regulatory framework. As expected the paper envisages the Financial Services Authority being replaced by three new authorities:

The CPMA will also have a strong markets division that will lead on all market conduct regulation and be the lead authority in representing the UK in the new European Securities and Markets Authority. However, the regulation and supervision of settlement systems and central counterparty clearing houses will be dealt with by the BoE. These functions will sit alongside the BoE's existing responsibilities for payment systems oversight.

Whilst the consultation paper can be seen as a foundation paper which sets out the government's core concepts for reform much more detail is needed. A further consultation paper and draft legislation is expected in early 2011. However, even at this early stage by concentrating authority in the BoE, the government is sending a clear message that it intends to create a powerful body with significantly increased influence over the UK's financial system and economy.

Employers attempting to avoid defined benefit pension scheme liabilities received a sharp warning from The Pensions Regulator (TPR) when the first contribution notice under the Pensions Act 2004 was issued in June. A Belgian company, VDW, which sold its UK subsidiary under a pre-pack insolvency in 2006 and left its pension liabilities for the Pension Protection Fund, has been ordered by TPR to pay £5.1 million to the UK pension scheme, despite VDW not being a scheme employer.

The power to issue a contribution notice applies where an act or a series of acts causes material detriment to a scheme. TPR's determinations panel considered this issue and then evaluated the main purpose of the act or omission.

The panel also considered whether it was reasonable to impose liability on VDW and its chairman personally.

TPR found:

The panel concluded the sum sought was reasonable since that amount was required to restore the scheme to solvency. No contribution notice was issued against the chairman.

The main issue for TPR was VDW's decision to conceal its pre-pack plans from both TPR and the trustees. The panel also noted that VDW chose to gamble that an overseas parent company would not be pursued. Companies which do not engage openly with their scheme trustees regarding pension scheme liabilities are likely to become subject to TPR's enforcement action. It is expected that VDW will appeal.

HM Revenue & Customs has launched a Double Taxation Treaty Passport (DTTP) Scheme for overseas corporate lenders, which is intended to simplify and improve the system of applying for double taxation treaty relief on interest payments made by UK borrowers.

An overseas corporate lender in a country with which the UK has a Double Taxation Treaty that includes an interest Article, may apply for a Treaty Passport from HMRC. The scheme is open to overseas corporate lenders only; individuals are not eligible.

Overseas corporate lenders may register now for a Treaty Passport, although the DTTP Scheme will not start until 1 September 2010.

The DTTP Scheme will work as follows:

While borrowers can search the HMRC database to verify that a lender has been granted passport holder status, they will not be permitted to apply the treaty rate of withholding tax until a direction has been received from HMRC.

The Loan Market Association has published a revised version of its senior multi-currency term and revolving facilities agreement for leveraged finance transactions, which reflects the DTTP Scheme (although it only applies where the treaty provides a full exemption, rather than a reduced rate of withholding tax). It is expected that the DTTP Scheme will improve the process of obtaining clearance for lenders who rely on a double tax treaty for relief from withholding tax. However, for those who do not hold passports, the normal certified claim procedure remains available.