Pension funds have been given extra time to prepare for potentially onerous rules requiring their over-the-counter (OTC) derivative transactions to be centrally cleared.
The European Commission further extended schemes' transitional relief from the rules until 16 August 2018, as their exemption was due to expire this August.
Although central clearing rules for most derivatives have already come into force under European Market Infrastructure Regulation (EMIR), pension funds have been exempted because of the difficulties they would face in sourcing cash to post as collateral.
Given schemes are typically cash poor and likely do not have large amounts of highly liquid assets, they would face huge costs and challenges to meet the rules now. Central counterparties (CCPs) have been working on finding solutions for pension funds but the European Commission said CCPs need additional time.
The commission said the upcoming targeted review of EMIR, announced under its 2017 work programme as a REFIT (regulatory fitness and performance) initiative, would provide an in-depth opportunity to assess this issue.
It comes after the commission said last November it could even consider making the exemption permanent if necessary. It also said it would look at the interaction between EMIR and the bank leverage ratio.
This came on the back of concerns that pension schemes' temporary exemption from clearing was being undermined by the new bank capital rules that would make hedging strategies more expensive.
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