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IPE special report May 2018

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ESMA backs clearing exemption for 16 UK pension providers

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The European Securities and Markets Authority (ESMA) has backed granting 16 UK pension providers – from buyout schemes to pooled funds – transitional exemptions from central clearing obligations.

The exemptions themselves have to be granted by the UK Financial Conduct Authority (FCA), which has to seek the opinion of ESMA before making its decision.

The exemptions the EU supervisory body has come out in favour of are in relation to the obligation to centrally clear OTC derivative contracts under the European Market Infrastructure Regulation (EMIR).

Some pension scheme arrangements or entities get an automatic temporary exemption from that obligation, whereas others need prior authorisation.

The 16 pension schemes are not named but include a range of occupational schemes such as authorised and contractually based pooled funds, buyout schemes and life insurance providers, as well as defined contribution personal pension schemes.

In each case, ESMA backs the FCA’s view that the pension providers would have difficulties meeting variation margin requirements – a cash payment made on a daily or intra-day basis for profits or losses – for centrally cleared transactions.

This is because the schemes have limited cash holdings, and because of high costs in the form of lower investment returns or transaction costs, as well as “the risk of inefficiencies as a result of converting assets into cash”, according to ESMA.

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