knowledge | 8 April 2020 |

EMIR Update – ESMA Consults on Pension Scheme Arrangements

ESMA has published a preliminary report (the “Report”)(here) documenting the progress made towards achieving clearing solutions for Pension Scheme Arrangements (“PSAs”). The Report also launches a public consultation in the form of a questionnaire set out in its Annex 2. 


EMIR1 requires specifically identified standardised over-the-counter derivatives to be cleared via a central counterparty (“CCP”), so as to mitigate risks. As set out in our previous briefing (here), in recognition of the fact that PSAs do not typically hold the level of cash required to meet CCPs’ daily margin requirements, they were afforded a temporary exemption from the clearing requirement, until 16 August 2018, to allow CCPs time to develop a suitable technical solution for the transfer of non-cash collateral as variation margins.  Regulatory forbearance (see our previous briefing here) provided further relief for PSAs pending the entry into force on 17 June 2019 of EMIR Refit2

As no such solutions had been developed by the time EMIR Refit entered into force, the exemption was extended until 18 June 2021 (and applied retrospectively to all in-scope transactions transacted by PSAs in reliance on the regulatory forbearance referred to above), with the potential for a further 1 or 2 year extension. However, the recitals to EMIR Refit confirm that central clearing remains the ultimate aim, and requires the European Commission to monitor the progress made by CCPs, clearing members and PSAs towards viable solutions and prepare a report on that progress. In order to provide input to this latter report, ESMA is required to produce a first report within 6 months from the entry into force of EMIR Refit and every 12 months thereafter until the end of the exemption period.

The Report

The Report is ESMA’s first report following the entry into force of EMIR Refit. Noting that the deadline had not allowed sufficient time to consult publicly and little time for other authorities3 to provide their views, the report is limited to representing ESMA’s current understanding of the issues faced by PSAs in dealing with cash variation margins, the issues encountered by CCPs and clearing members in providing viable alternatives to posting cash for the purpose of meeting variation margin calls, and a provisional analysis of the possible solutions.

The Report is also intended to serve as the starting point to publicly consult stakeholders, coordinate with other authorities and develop recommendations in subsequent reports. In this regard, Annex 2 of the Report contains a detailed questionnaire on the central clearing obligations for PSAs and, more specifically, solutions to facilitate PSAs discharging variation margin requirements. ESMA will use responses to the consultation received by 15 June 2020 to prepare the second report due by December 2020 and so interested stakeholders (including but not limited to PSAs) should take the opportunity to consider this preliminary report and respond to the questionnaire.

  1. Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012.
  2. Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019.
  3. The European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Systemic Risk Board.

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.

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