Of interest to banking clients are the draft regulations published for consultation by HM Treasury which are intended to prevent ring-fenced banks becoming responsible for group-wide pension liabilities except in stipulated circumstances. The consultation period on the draft regulations ends on 15 October 2014.
The regulations will be made under Part 9B of the Financial Services and Markets Act 2000, which provides for the eventual ring-fencing of core banking activities from investment banking.
A ring-fenced bank will only be allowed to participate in a non-segregated multi-employer scheme if the other employers are its wholly-owned subsidiaries or other ring-fenced banks in the same group (or their wholly-owned subsidiaries). Participation in a segregated scheme will only be possible if the ring-fenced bank is the only employer in its section or the only other employers in the section are its wholly-owned subsidiaries or other ring-fenced banks in the same group (or their wholly-owned subsidiaries). Participation in a “shared liability arrangement” (broadly meaning any guarantee or indemnity) that renders the ring-fenced bank liable to the pension liabilities of non-permitted employers will also be prohibited.
The provisions are not due to come into effect until 2026. The Government believes schemes should largely be able to undertake the necessary restructuring under their existing rules, but trustees will be given a limited overriding modification power, subject to several safeguards.
In the meantime, the Government considers that the various apportionment or withdrawal arrangements used for managing employer debts will be available for the purpose of any restructuring undertaken to comply with the requirements. In a key policy change, if a corporate reorganisation is required to allow a ring-fenced bank to comply either with the main requirements instituting ring-fencing or the pensions-related provisions, the bank must apply for clearance from TPR. Until now, the decision whether to seek clearance in relation to TPR's anti-avoidance powers has been a voluntary matter for employers.
The consultation period on the draft regulations ends on 15 October 2014.