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Further three-year delay on derivatives clearing for pension funds

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European pension funds have received a further three-year exemption from derivatives clearing rules in a move the European Commission claims will save them “up to €1.6bn”.

Pension schemes will not be expected to comply with requirements to trade derivatives through clearing houses until 2020, the commission announced yesterday as it unveiled amendments to the European Market Infrastructure Regulation (EMIR).

In its proposed amendments, the commission said “no viable technical solution facilitating the participation of [pension schemes] in central clearing has emerged to date”.

The delay will give central clearing houses, pension schemes, and other players more time to come up with solutions, the European Commission said.

However, Valdis Dombrovskis, vice-president responsible for financial stability, financial services, and the capital markets union, said central clearing for pension funds remained “a clear goal”.

He added that the delay would help pension schemes “avoid estimated losses of up to €1.6bn”.

The decision marks the third time the European Commission has delayed bringing pension funds into EMIR’s scope. It originally pushed back the deadline by two years to August this year, before adding another year to this revised timetable.

A spokesman for PensionsEurope, the continent-wide trade body, said: “The prolongation of the exemption is good news for pension funds. We appreciate that the European Commission has taken seriously into consideration the undue financial burden that would have resulted from [the] clearing obligation when only cash can be used as collateral. Now we need to use these extra years of exemption to find good permanent solutions.”

James Walsh, policy lead for EU and international at the UK’s Pensions and Lifetime Savings Association, welcomed the exemption.

“This extension recognises that the market has not yet developed a practicable solution for clearing by pension schemes,” he said. “While this development removes the worrying prospect of compulsory clearing from August 2018, it does not present a solution to the underlying problem. Derivatives are an essential tool for pension funds, who use them to hedge their risks and ensure they can pay pensioners.”

In a speech announcing the EMIR amendments, Dombrovskis also outlined regulatory effects on non-EU-based central clearing houses, a particularly important issue with the UK’s impending exit from the EU. London is a key hub of derivatives trading in Europe, with the commission estimating that as much as 75% of euro-denominated interest rate derivatives are traded in the UK capital.

Dombrovskis said the European Commission was considering whether to require clearing houses “of key systemic importance” to be domiciled within the EU. Alternatively, the commission could request “enhanced supervisory powers” over clearing houses in non-EU countries.

He added that detailed discussions on this issue would begin soon, with a view to proposing legislation in June.

In addition to the exemption for pension funds, the commission also announced a streamlining of reporting requirements to alleviate the burden on smaller players in the derivatives markets, particularly non-financial companies.

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