On 9 June 2022, the European Commission published a report assessing whether viable technical solutions have been developed for the transfer by pension scheme arrangements (PSAs) of cash and non-cash collateral as variation margins and the need for any measures to facilitate those viable technical solutions.

The European Market Infrastructure Regulation (EMIR) contains a temporary exemption from the central clearing obligation for entities operating PSAs, in relation to certain types of over-the-counter (OTC) derivatives. The exemption has been extended several times since 2012. Currently, it runs until 18 June 2022. The Commission may adopt a delegated act, extending the exemption for the last time until June 2023.

Article 82(2) of the EMIR requires the Commission to prepare annual reports assessing if viable technical solutions have been developed for the transfer by PSAs of cash and non-cash collateral as variation margin and the need for measures to facilitate their update. The report now published is the third Commission report and it sets out the progress made to date.

The report concludes that, PSAs and their CCP clearing members need additional time to finalise the arrangements necessary to clear all the contracts that are in scope of the clearing obligation. Time is also needed to address liquidity preparedness of PSAs, as not all seem to have adequate liquidity management. The Commission is therefore prolonging the clearing exemption for PSAs for a final year and has adopted the required Delegated Regulation, which enters into force on the day following that of its publication in the Official Journal of the EU. From 19 June 2023, PSAs will be required under the EMIR to clear.

EU CCPs should, in particular, use the additional time to further develop their facilitated access and collateral transformation models, to increase their attractiveness to PSAs, in particular smaller ones, which seem currently to be more reluctant to clear. At the same time, pension funds should ensure that they possess sufficient organisational competences and capacities to handle clearing of their derivative portfolios.

To support efficient and competitive clearing services, the Commission will come forward in the second half of 2022 with measures to make EU CCPs more attractive to market participants; by making the EU a more attractive and cost-efficient clearing hub and by strengthening the EU’s supervisory framework for CCPs to better manage associated risks. This strategy on clearing will attract greater activity at EU-based clearing houses, providing PSA’s with greater access to competitive and efficient clearing services.