On 3 July 2018, the European Securities and Markets Authority (ESMA) published a statement on the clearing obligations for pension scheme arrangements under the European Market Infrastructure Regulation (EMIR).
EMIR introduced a temporary exemption for certain pension schemes from the obligation to clear their OTC derivative contracts to allow time for a suitable technical solution to be developed for the transfer of non-cash collateral. This period has been extended twice and it is not possible to extend it again. As a result, the current exemption will expire on 16 August 2018.
The EC is undertaking a review of EMIR (Refit) and a further extension of the temporary exemption is part of the Refit negotiations. However, any final agreement is not expected to be in force by the time the temporary exemption expires. As a result, there would be a timing gap during which pension schemes would need to have clearing arrangements in place and start clearing their derivative contracts before they are once again no longer required to do so.
In its statement, ESMA said that it is aware of the challenges that schemes would face to start clearing their OTC derivative contracts on 17 August 2018. It asks supervising authorities (ie the FCA in the UK) not to prioritise supervisory actions in respect of the clearing obligation “towards entities that are expected to be exempted again in a relatively short period of time“.
Following ESMA’s statement, the FCA has confirmed that it will not require pension schemes to start putting processes in place to clear derivatives for which they are currently exempt from clearing under EMIR during the timing gap (subject to any further statements being issued by ESMA or the FCA).