Europe’s fourth largest pension fund, the Danish statutory giant ATP, has welcomed this week’s announcement from the EU securities markets regulator that operators in the union will still be allowed to use major UK clearing houses after the end of the year, as the pension fund continues to move derivative contracts out of the country because of Brexit.
On Monday, the European Securities and Markets Authority (ESMA) said three UK central counterparties (CCPs) including LCH would be recognised as third country CCPs eligible to provide services in the EU after the end of the transition period following the UK’s withdrawal from the EU on 31 December 2020.
Jan Ritter, head of treasury at ATP, told IPE: “ATP does not speculate in the outcome of the Brexit deals, we have however, for some years been moving the majority of ATP’s derivative exposure – bilateral, cleared and exchange-traded derivatives or ETDs – from counterparties in the UK to counterparties in the EU with the overall purpose to be able to continue our business in a hard Brexit scenario.
“This is a huge legal and operational exercise and ATP welcomes the recent announcement from ESMA regarding a limited period of time where trading on UK CCP’s is equivalent in accordance with regulation,” he said.
Ritter said ESMA’s move would give the DKK918bn (€123bn) Danish pension fund time to manage its cleared derivatives on UK CCPs.
The leeway granted by ESMA will last until 30 June 2022, and comes after the European Commission adopted a time-limited “equivalence” decision to give financial market participants 18 months to cut their exposure to UK CCPs.
The Commission said the EU financial system’s heavy reliance on the services of UK-based CCPs had to be scaled down because the status quo raised important financial stability issues.
However, the EU’s new equivalence decision does not cover bilateral contracts between pension funds and banks based in the UK.
In the Netherlands, most pension schemes are preparing to move existing swap contracts with UK counterparties to newly-established EU entities.