The European Securities and Markets Authority (ESMA) has backed the Danish financial regulator Finanstilsynet, saying three unnamed Danish pension schemes should be exempt from the obligation to centrally clear OTC derivatives contracts under the European Market Infrastructure Regulation (EMIR).
In line with the process national regulators have to go through before they can grant exemptions from these rules to individual pension funds and providers, Finanstilsynet had written to ESMA for its opinion.
ESMA has now written back to the Danish regulator saying that, in all three cases, exemptions are justified because of difficulties in meeting the variation-margin requirements.
In each of the three letters, ESMA states: “The national competent authority is of the opinion that the entity type would encounter difficulties in meeting variation-margin requirements for centrally cleared transactions due to limited holdings of cash within the entity type, high cost (e.g. lower investment returns or transaction costs) and risk of inefficiencies as a result of converting assets into cash.”
It said EIOPA shared this view.
While some types of pension scheme are given automatic temporary exemptions from the central clearing obligation, others need to be authorised beforehand.