The European Commission has decided that pension funds should have one more year before having to centrally clear their derivatives portfolios, in keeping with a recommendation from the EU securities markets watchdog earlier this year.

The extension is subject to the scrutiny of the European Parliament and EU Council, “but this will be the final exemption”, Mairead McGuinness, commissioner for financial services, financial stability and capital markets, told delegates tuned in to a PensionsEurope conference yesterday.

She said the decision had been taken in response to concerns expressed by pension funds, especially smaller ones, that they were not yet ready for central clearing, and that the exemption until June 2023 was to give them time to complete their preparations and explore solutions to the central clearing challenges they face.

The main challenge that pension schemes face is the need to post collateral in cash in the event of market stress. PensionsEurope has argued that a structural solution is needed involving European central clearing counterparties (CCPs) providing central bank liquidity to pension funds by converting high-quality government bonds into cash.

The Commission’s decision for a final extension of the exemption for pension schemes comes as the EU executive aims to increase clearing capacity in the EU and reduce reliance on UK CCPs, although in February it extended equivalence for UK CCPs until 30 June 2025. When ESMA issued its recommendation earlier this year, it said the start of a clearing obligation for pension schemes could contribute to the achievement of these goals.

Addressing the PensionsEurope conference, McGuinness said there was an expectation that pension funds would clear via EU CCPs when the exemption expired.

“EU CCPs have taken steps to meet pension schemes’ needs, introducing specific arrangements that facilitate pension scheme access to repo market liquidity and clearing,” she said.

The Commissioner thanked PensionsEurope for its previous expression of willingness to support the Commission’s plans to increase clearing in the EU, including by opening active clearing accounts at CCPs.

“We count on associations like PensionsEurope to increase awareness among stakeholders on this topic,” she said.

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Susanna is deputy news editor at IPE. At IPE she covers responsible investment and EU regulation, but also enjoys reporting on developments in and around the UK pensions industry. Having been a financial journalist since 2008, Susanna started her career as a corporate governance/corporate social responsibility analyst at proxy advisory firm PIRC.View full Profile

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