Shearman & Sterling LLP | FinReg | HM Treasury Publishes Guidance On Pension Scheme Arrangements and the EMIR Clearing Obligation In A No Deal Brexit Scenario
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  • HM Treasury Publishes Guidance On Pension Scheme Arrangements and the EMIR Clearing Obligation In A No Deal Brexit Scenario
    02/21/2019
    HM Treasury has published guidance on the availability of the exemption from the clearing obligation for Pension Scheme Arrangements under the European Market Infrastructure Regulation in a post-Brexit no deal scenario. The U.K. government has been publishing statutory instruments (U.K. secondary legislation) onshoring and amending EU regulations for Brexit. This is being done under the European Union (Withdrawal) Act 2018, so as to ensure a workable U.K. statute book after Brexit. The U.K.'s onshoring legislation has been drafted so as to come into operation on exit day if there is a "no deal" scenario where the U.K. leaves the EU without a ratified withdrawal agreement. The onshoring legislation includes various statutory instruments to onshore the EU EMIR.

    The existing exemption under EU EMIR expired in August last year and EMIR does not provide for any extension of the exemption. The exemption is due to be reinstated under the draft amendments to EMIR (known as EMIR Refit or EMIR 2.1). The European Securities and Markets Authority issued a statement to the effect that does not expect national regulators to focus on any non-compliance by PSAs with the clearing obligation under EMIR or the related trading obligation under the Markets in Financial Instruments Regulation. Based on current drafts of EMIR Refit, the exemption from clearing for pension funds would apply for two to three years (depending on the size of the fund) following the coming into force of the amendments. The Treasury had previously confirmed that, if EMIR Refit comes into force before exit day in the event that the U.K. leaves the EU without a deal or an implementation period, the temporary exemption for PSAs under EMIR Refit would be brought into U.K. law using the powers under the EU Withdrawal Act 2018.

    HM Treasury's guidance explains that, in a no-deal scenario, the temporary exemption would instead be carried into U.K. law using the powers envisaged by the proposed Financial Services (Implementation of Legislation) Bill. The Bill gives HM Treasury powers to implement and make amendments to a specified list of "in flight" EU financial services legislation, including EMIR Refit. The Bill covers EU financial services legislation which is proposed or published but that is out of scope of the EU Withdrawal Act because it will not be operative on or before exit day. Only legislation with an implementation date falling in the two years after exit is covered by the Bill and therefore the PSA clearing exemption would be in scope, provided that EMIR Refit implementation date falls in the two years after exit day (and the U.K. leaves the EU without a deal). It is currently expected that EMIR Refit will be formally adopted before the U.K. is scheduled to leave the EU.

    It has also been clarified that under the U.K. EMIR, although the relevant definitions of pension funds have been changed to reflect U.K. concepts rather than EU ones, it is still intended that EU pension funds will be able to treat themselves as third country entities equivalent to U.K. pension funds, for purposes of the relevant U.K. exemptions.

    View the HM Treasury guidance here.

    View HM Treasury's explanatory information on the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018.

    View the proposed Financial Services (Implementation of Legislation) Bill here.

    You may also like to see a consolidated version of the U.K.'s onshored version of EMIR.

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