The European Commission has granted pension funds one more year before having to centrally clear their derivatives portfolios, in keeping with a recommendation from the EU securities markets watchdog earlier this year.
The exemption has been extended for what is expected to be a final time, to 18 June 2023 matching the expiry date of the exemption under UK EMIR.
The extension is subject to the scrutiny of the European Parliament and EU Council, “but this will be the final exemption”, Mairead McGuinness, commissioner for financial services, financial stability and capital markets, told delegates at a PensionsEurope conference.
She said the decision had been taken in response to concerns expressed by pension funds, especially smaller ones, that they were not yet ready for central clearing, and that the exemption was to give them time to complete their preparations and explore solutions to the central clearing challenges they face.
The main challenge that pension schemes face is the need to post collateral in cash in the event of market stress.
PensionsEurope, which represents 25 national associations in 18 EU member states and 4 other European countries, has argued that there needs to be a solution involving European central clearing counterparties (CCPs) providing central bank liquidity to pension funds by converting high-quality government bonds into cash.
The Commission’s decision for a final extension of the exemption for pension schemes comes as the EU executive aims to increase clearing capacity in the EU and reduce reliance on UK CCPs, although in February it extended equivalence for UK CCPs until 30 June 2025.
Speaking at the PensionsEurope conference, McGuinness said there was an expectation that pension funds would clear via EU CCPs when the exemption expired.
“EU CCPs have taken steps to meet pension schemes’ needs, introducing specific arrangements that facilitate pension scheme access to repo market liquidity and clearing,” she said.
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