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Special Report

ESG: The metrics jigsaw


​Confusion reigns over pension exemption from central clearing

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  • The European Commission

Confusion reigns within the pension industry over the European Commission’s stance on an industry exemption from regulation that would require it to centrally clear derivatives trades.

The exemption, granted under the European Markets Infrastructure Regulation (EMIR) in 2012, is set to expire in a year. It is understood that the Commission was this week due to consider a report on extending the deadline further.

Asked by IPE, a spokesman for the Directorate General Internal Market would only say that its report on the matter to the European Parliament and European Council – comprising representatives of each member state government – would be endorsed in the coming weeks.

A person familiar with the situation at a large UK pension fund said it would be “useful” if the Commission decided a continuation of the exemption was needed.

“We are taking the view that they will continue the exemption,” the source added.

Helle Gade, chief consultant at the Danish pension and insurance association (F&P), said that she was uncertain if the Commission would extend the exemption, but that in the association’s view an extension will be needed in the short run.

“We would prefer that central counterparties (CCPs) could allow for other instruments than cash to post as collateral, but since there has been no development to allow for the use of other instruments as collateral, we believe there is a need to extend the exemption.”

The European Securities and Markets Authority (ESMA) has recently concluded a consultation on the types of assets, besides cash, that the industry could use as collateral.

However, PensionsEurope raised concerns about the use of government bonds, as the supervisor had proposed an overall limit on the types of bonds eligible as collateral, potentially leading to increase costs as they trade to acquire eligible assets.

According to a joint presentation by the European Insurance and Occupational Pensions Authority’s stakeholder groups for occupational pensions and insurance matters in July, the cost of centrally clearing for Dutch IORPs alone could be between €1.5-4.5bn.

The Occupational Pensions Stakeholder Group recommended that the exemption from central clearing should only begin once mandatory clearing gets underway, essentially extending the exemption until 2018.

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