EU and UK Authorities Clarify Trading Obligation Expectations for Pension Schemes

The European Securities and Markets Authority has published a further statement on the transitional exemption from the clearing obligation for pension scheme arrangements under the European Market Infrastructure Regulation and delegated regulations. Transitional provisions provide for PSAs to be exempt from the clearing obligation until August 16, 2018. There is no provision in EMIR that would allow for a further extension of this exemption period. It is proposed that this exemption will be further extended under the proposal to amend EMIR, known as EMIR Refit. ESMA issued a statement on July 3, 2018 stating that national regulators are expected not to prioritize "their supervisory actions towards entities that are expected to be exempted again in a relatively short period of time and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate manner."

This new statement clarifies that ESMA does not expect national regulators to focus on any non-compliance by PSAs with the related trading obligation under the Markets in Financial Instruments Regulation. Financial counterparties that are exempt from the clearing obligation under EMIR are also exempt from the trading obligation under MiFIR. It is likely that the clearing obligation exemption will expire before it is extended under EMIR Refit and therefore the trading obligation exemption would also lapse.

The length of the extension under EMIR Refit is yet to be agreed as part of the legislative process between the European Parliament (which advocates a two-year extension) and the Council of the European Union (which supports a three-year extension). Parliament is also proposing to backdate the application of the new transitional period to August 16, 2018 if EMIR Refit enters into force after the expiry of the existing exemption so as to prevent a gap between the two exemptions periods, providing legal certainty for PSAs and their counterparties.

The U.K. Financial Conduct Authority issued a statement on August 8, 2018 supporting ESMA's new statement. The FCA confirmed that it will not require PSAs and their counterparties to put processes in place to trade their OTC derivatives on trading venues during the interim gap.

View ESMA's statement.

View the FCA's statement.

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