Shearman & Sterling LLP | Financial Regulatory Developments Focus | EU and UK Authorities Clarify Clearing Obligation Expectations for Pension Schemes
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  • EU and UK Authorities Clarify Clearing Obligation Expectations for Pension Schemes
    07/03/2018
    The European Securities and Markets Authority has published a 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. The length of the extension is yet to be agreed as part of the EMIR Refit 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.

    ESMA has recognized that the position may create uncertainty for derivatives counterparties. ESMA states 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."

    The U.K. Financial Conduct Authority issued a statement on July 4, 2018 supporting ESMA's statement. The FCA confirmed that it will not require PSAs and their counterparties to put processes in place to clear derivatives during the interim gap.

    View ESMA's statement.

    View the FCA's statement.

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    TOPIC: Derivatives