On 1 February 2022, the European Securities and Markets Authority (ESMA) published a letter to the European Commission providing its views on the clearing obligation for pension scheme arrangements (PSAs) and recommending the end of the current exemption for the clearing obligation with a one-year implementation period.

Following its assessment, the ESMA concluded the PSAs are, to a large extent, operationally ready to clear over-the-counter (OTC) derivatives but they should be given sufficient time before a clearing obligation takes effect and recommends applying such obligation from 19 June 2023. In particular, the ESMA notes that PSAs and the relevant market participants need sufficient time to finalise their clearing and collateral management arrangements in order to absorb the additional cleared volume corresponding to PSAs’ OTC interest rate derivative trading activity that have not yet been voluntarily cleared. In addition, the start of the clearing obligation for PSAs should be considered in the context of the broader plan to build clearing capacity in the EU and reduce reliance on UK CCPs, to which the end of this exemption can also contribute. The proposed start of the clearing obligation may also feed into the European Union’s boarder clearing strategy.

Based on this recommendation, the Commission will decide on whether to grant the suggested extension of the exemption until June 2023.

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