EMIR/MiFIR: Regulatory Forbearance for Pension Scheme Arrangements

Pension scheme arrangements ("PSAs") became subject to the EMIR clearing obligation on 17 August 2018 as the existing exemption for PSAs expired on that date. A few days later, on 23 August 2018, the Central Bank of Ireland ("Central Bank") confirmed that it will apply its risk-based supervisory powers in the day-to-day enforcement of applicable legislation in a proportionate manner, in accordance with the recommendations of the European Securities and Markets Authority ("ESMA").


While EMIR requires standardised over-the-counter ("OTC") derivatives to be cleared through central counterparties ("CCPs"), PSAs benefited from an exemption from this requirement up until 17 August 2018, due to concerns about the impact that the requirement could have on retirement income.  The purpose of the exemption was to allow CCPs time to develop a suitable technical solution for the transfer of non-cash collateral as variation margins (see our previous briefing here). 

The EMIR clearing obligation is closely linked to the trading obligation for derivatives under the Markets in Financial Instruments Regulation 600/2014 ("MiFIR"), which requires certain derivatives to be mandatorily traded on-venue on a regulated market, multilateral trading facility, organised trading facility, or an equivalent third-country trading venue. Commission Delegated Regulation 2017/2417 applies that MiFIR trading obligation, on a phased basis, to:

  • specified maturities of fixed-to-float interest rate swaps denominated in euro, pounds sterling or US dollars; 
  • the on-the run series and first off-the-run series of five year iTraxx Europe Main and iTraxx Europe Crossover index credit default swaps. 

However, MiFIR exempts financial counterparties exempted from the EMIR clearing obligation from the trading obligation for derivatives.

In May 2017, the European Commission published a proposal to amend EMIR (Refit), which includes a further extension of the temporary exemption from clearing for PSAs. As this proposal is still going through the legislative process (see our previous briefing here), the PSA exemption has not yet been extended and, as of 17 August 2018, PSAs are technically subject to the EMIR clearing requirement and the MiFIR trading obligation, although they are likely be exempted from them again shortly. 

ESMA’s Communication

On 3 July 2018, ESMA issued a communication (here) acknowledging the difficulties PSAs would face if they were required to comply with the EMIR clearing requirement for the limited period between expiry of the then-applicable exemption and it becoming effective again.  It confirmed that it expects competent authorities (including the Central Bank) not to prioritise their supervisory actions towards PSAs that do not start clearing their OTC derivative contracts on 17 August. ESMA subsequently published an updated communication on 8 August 2018 (here), extending that acknowledgment and confirmation to encompass PSA compliance with the MiFIR trading obligation, while nevertheless encouraging PSAs to trade on trading venues.  

The Central Bank’s Statement

On 23 August 2018 the Central Bank issued a statement welcoming ESMA's communications (here), confirming that, in accordance with the ESMA recommendation and pending the entry into force of the amendments to EMIR, the Central Bank will apply its risk-based supervisory powers in the day-to-day enforcement of the clearing and trading obligation for PSAs in a proportionate manner.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.