On 2 November 2009, the FSA published a speech from its chairman, Adair Turner, in which he discussed the regulation of large systemically important banks (banks that governments deem are 'too-big-to-fail').

In summary, Lord Turner's view was that there is no silver bullet solution to the regulation of such banks and that the overall policy response to be developed by regulators will involve trade-offs between multiple policy instruments.

He also said that:

Near the end of his speech Lord Turner made some interesting observations regarding the treatment of large cross-border banking groups. When large cross-border banking groups get into difficulties the current practice is for the bank's home country government to assume responsibility for rescuing the entire group using capital support and guarantees.

In Lord Tuner's view, for some cross-border banking groups part of the way forward should be a greater focus on standalone national subsidiaries. He also believes that there may well be some necessary trade offs:

The Solvency II Directive, which will radically modernise the prudential regulation of insurers and reinsurers in Europe, is due to be implemented by 31 October 2012. The final form of the Framework Directive was agreed on 22 April 2009. However, much of the detail of how insurers will be expected to organise their businesses will be set out within the various Level 2 implementing measures (the Directive will follow the levels of the Lamfalussy process).

The new solvency regime will be risk-based and requires all insurers to calculate their capital requirements in relation to the risks that impact their business. Insurers will have to satisfy a minimum capital requirement (MCR) and to run their business in such a way as to satisfy a higher risk-based capital requirement - the solvency capital requirement (SCR). Breach of the MCR will trigger an automatic loss of the insurer's licence, whereas breach of the SCR will be likely to trigger regulatory intervention.

Insurance groups will be required to calculate a group solvency capital requirement in addition to the 'solo' capital required for each group member. Insurers and reinsurers must be able to demonstrate that they have adequate governance arrangements in place, including risk management, actuarial and compliance functions.

CEIOPS (Committee of European Insurance and Occupational Pension Supervisors) is the supervisory body tasked with drafting advice to the European Commission on the content of the detailed provisions of the new regime. The Commission has requested that CEIOPS provides it with fully consulted-upon advice on Level 2 implementing measures by January 2010. So far, CEIOPS has received feedback from two 'waves' of advice (the first wave was released in March, followed by a second wave in July).

CEIOPS has now sent out a third wave of advice for consultation. CEIOPS is inviting comments on its draft advice until 11 December 2009. In particular, CEIOPS is seeking input from stakeholders in relation to the calibration of the SCR formula and MCR as well as simplifications regarding the calculation of technical provisions and the SCR formula and the partial internal model.

Proposed changes to the Employer Debt Regulations aim to assist some 50% of corporate restructurings. This article highlights potential issues under the current proposals.

General easement. Although welcome, the mandatory steps are too restrictive. In practice, it may be easier to accept that a debt is triggered and then apportion it.

The one-to-one transfer condition, where all pension liabilities and assets transfer to the receiving employer, and the exiting employer ceases employing active members on the same date, is impractical and may enforce artificial restructuring to avoid an employment-cessation event (ECE). Instead, a time limit reflecting the current 12 month "grace period" could apply, provided the trustees were satisfied that any restructuring test was met.

The restructuring test. The trustees must be satisfied that the receiving employer will be "at least as likely" as the exiting employer to meet the transferred liabilities. Instead, the test could reflect the current regulations, requiring that the trustees are "reasonably satisfied" that the remaining employers can fund the scheme.

A simpler test? Group restructurings could be simplified if the trustees had to satisfy themselves that the employers' covenant as a whole would not weaken significantly following reorganisation. The reorganisation could be structured in any way, with liabilities remaining in the scheme and guaranteed by any entity in a regulator-approved form. If the trustees were satisfied, then any event within the restructuring should not be regarded as an ECE.

Employer insolvency. The requirement for the employers to make expected solvency statements relating to 12 months post transfer appears problematic. There is also inconsistency with the current apportionment provisions which require no such declaration.

Retrospective ECEs. A cut-off date should apply, reducing the risk that the general easement conditions might hamper reorganisations. An ECE should arise only if the Regulator considers the transaction adversely affects scheme funding.

De minimis easement. It is impractical for the exiting employer to employ fewer than 2% of all final salary scheme members and have liabilities lower than GB£100,000. Instead, this limit could be a percentage of total liabilities.

Solutions? On sales, where the exiting company cannot pay the section 75 debt, it is often paid either by a group company or under an artificial mechanism. Allowing any group company to pay the debt (including scheme non-participants) would be simpler.

On 14 October 2009, the Government announced a major change to the way in which company buy-backs of debt will be taxed. The change may be relevant to any corporate debt buy-back where debt is being purchased back by the group at less than face value, including in a securitisation or a commercial refinancing.

The global financial crisis has resulted in many loans trading at below par value. This presents groups with an opportunity to purchase their own debt and, therefore, extinguish the debt at a reduced cost.

The tax treatment of loans issued by a company follows the company's accounting treatment. If a company buys back its own debt it will extinguish that debt and the accounts will show a profit as the purchase price will be less than the book value of the debt. This accounting profit will be subject to UK corporation tax in the company's hands. Where an impaired debt is sold to a person connected with the borrower there is a deemed release of the impaired part of the debt (taxable on the borrower) so as to achieve tax symmetry between the borrower and the original lender (who can deduct the impairment).

The announced change is targeted at a perceived loophole in the legislation which provided an exemption from the deemed release charge for corporate rescues of companies in financial difficulties. It was possible to set up a new company within the borrower group and use that new company to buy back group debt at a price less than face value. This would not have resulted in a tax charge because the debt would not be extinguished when purchased by a person other than the issuer. If the purchasing company was resident in the UK for tax purposes it would ultimately be subject to UK corporation tax on the difference between the amount paid for the loan and the eventual repayment amount. However, as the debtor and creditor would be connected, it was often possible for the debt to be written down and repaid at cost or waived without any tax charge arising. Also, if the purchasing company was not resident in the UK, a UK tax charge could generally be avoided.

With effect from 14 October 2009, "only those debt buy-backs that are undertaken as part of genuine corporate rescues will benefit from buy-back profits not being subject to tax". However, the wording of the announcement means that many commercial buy-backs could be affected.

The proposed changes introduce three conditions so that to avoid the tax charge:

Further details of the change were given in an HMRC release dated 21 October 2009. This included confirmation that "change of ownership" will mean, broadly, a change in the ultimate ownership of more than 50% of the shares in the borrower. Grandfathering rules will save transactions which were partly implemented at 14 October – the new rules will not apply if the offer to acquire the debt was made on or before 14 October 2009. There will also be an exemption from deemed release treatment where a group refinances its debt by issuing new debt.