REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL under Article 85(2) of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, as amended by Regulation (EU) No 834/2019, assessing whether viable technical solutions have been developed for the transfer by pension scheme arrangements of cash and non-cash collateral as variation margins and the need for any measures to facilitate those viable technical solutions
Date: 2021-05-06
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: financial derivative, financial legislation, financial risk, financial supervision, financial transaction, pension fund, pension scheme, technical standard

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 6.5.2021  COM(2021) 224 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL under Article 85(2) of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, as amended by Regulation (EU) No 834/2019, assessing whether viable technical solutions have been developed for the transfer by pension scheme arrangements of cash and non-cash collateral as variation margins and the need for any measures to facilitate those viable technical solutions  
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

under Article 85(2) of Regulation (EU) No 648/2012 of the European Parliament and of 
the Council of 4 July 2012 on OTC derivatives, central counterparties and trade 
repositories, as amended by Regulation (EU) No 834/2019, assessing whether viable 
technical solutions have been developed for the transfer by pension scheme 
arrangements of cash and non-cash collateral as variation margins and the need for any 
measures to facilitate those viable technical solutions 

1. 

INTRODUCTION 

Regulation  (EU)  No.  648/2012  (the  European  Market  Infrastructures  Regulation, 
EMIR)  provides  for  a  temporary  exemption  from  the  central  clearing  obligation  for 
entities operating pension scheme arrangements (PSAs), in relation to certain types of 
OTC  derivatives1.  The  temporary  exemption  is  intended  to  take  into  account  the 
specific  features  of  the  business  model  of  such  entities  and  the  impact  mandatory 
clearing  could  have  on  pensions:  entities  operating  pension  scheme  arrangements 
typically  minimise  their  allocation  to  cash  in  order  to  maximise  the  returns  for  their 
policy  holders.  Hence,  there  is  a  risk  that  requiring  PSAs  to  clear  OTC  derivative 
contracts  centrally may lead to  PSAs divesting a significant  proportion  of their assets 
for cash in order for them to meet the margin requirements of CCPs, with a potential 
negative  impact  on  the  retirement  income  of  pensioners.  The  temporary  exemption  is 
intended to provide time for PSAs, central counterparties (CCPs) and clearing members 
to find a viable technical solution, which would allow PSAs to clear centrally at CCPs 
while avoiding materially adverse effects on pensioners’ income. 

EMIR Refit, which entered into force in June 2019, extended the exemption until June 
2021, with further potential extensions through Commission delegated acts twice, each 
time  by  one  year  maximum.  The  ultimate  aim  of  the  Regulation,  however,  remains 
central  clearing for PSAs as  soon as  possible. CCPs, clearing members and PSAs are 
required to do their utmost to contribute to the development of viable solutions.  

As  required  under  EMIR  Refit,  the  European  Commission  set  up  an  expert  group 
including representatives of CCPs, clearing members, PSAs and other relevant parties, 
so  as  to  monitor  their  efforts  and  assess  the  progress  made  towards  finding  viable 
technical  solutions.  The  expert  group,  which  also  includes  representatives  of  central 
banks,  European  Securities  and  Markets  Authority  (ESMA)  and  European  Insurance 

1   Under EMIR, PSAs include Institutions for Occupational Retirement Provisions (IORPs) as defined under 
Art.  6(a) of Directive 2003/41/EC, the occupational retirement  provision businesses of  institutions  under 
Art.  3  of  that  Directive,  the  occupational  retirement  provision  of  insurance  undertakings  covered  by 
Directive 2002/83/EC (under certain circumstances), as well as other authorised and supervised entities or 
arrangements operating on a national basis whose primary purpose is to provide retirement benefits. The 
exemption concerns OTC derivatives  which are objectively measurable as reducing investment risks that 
directly  relate  to  the  financial  solvency  of  PSAs.  It  also  applies  to  entities  established  to  provide 
compensation to members of such arrangements in case of default, and PSAs which encounter difficulties 
in meeting the variation margin requirements (Art. 89 EMIR).  

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and Occupational Pensions Authority (EIOPA), met in October 2019 and in April and 
November 2020.  

Article 85 of EMIR Refit  requires  the Commission to  prepare  yearly reports  until  the 
final  extension  of  the  exemption,  assessing  whether  viable  technical  solutions  have 
been  developed  for  the  transfer  by  PSAs  of  cash  and  non-cash  collateral  as  variation 
margins and the need for any measures to facilitate those viable technical solutions. The 
Regulation  also  establishes  that  ESMA,  in  cooperation  with  European  Banking 
Authority  (EBA),  EIOPA  and  the  ESRB,  shall  submit  annual  reports  to  the 
Commission assessing the issue. 

ESMA  delivered  a  first  report  to  the  Commission  in  April  2020.  A  first  Commission 
Report2,  issued  in  September  2020,  included  a  comprehensive  analysis  of  the  issues 
surrounding central clearing by PSAs. 

ESMA held  a public consultation  from  April to June 2020 to  gather a broad range of 
views  and  data  on  the  topic.  The  results  of  the  public  consultation  were  included  in 
ESMA’s second report to the Commission in December 2020, which was prepared in 
cooperation with the EBA, EIOPA and the ESRB. 

This is the second Commission Report under Article 85 of EMIR Refit. It presents the 
progress made, based on the discussions held in the Commission expert group and on 
the input provided by the ESAs and the ESRB through their reporting to the European 
Commission.  

2.  CONTEXT 

The PSA landscape in the EU is diversified. The largest PSA markets in the EU are to 
be found in the Netherlands, with an average ratio of assets to GDP of 173.3%, and in 
Denmark, with a ratio of 198.6% - according to end-2018 data3. Ireland also has similar 
schemes in  place. According to  data provided by ESMA4, Dutch PSAs accounted for 
70-80% of the notional amount of derivatives of all EU pension funds as of end-March 
2020. PSAs largely use derivatives to hedge their liabilities from a number of risks. 

The  first  Commission  Report  took  stock  of  the  situation  with  respect  to  PSA  central 
clearing.  It  illustrated  that,  as  emerged  from  the  discussions  within  the  Commission 
expert  group,  the  need  to  post  variation  margin  in  cash  can  be  problematic  for  PSAs 
particularly in stressed market conditions, when variation margin calls by CCPs can be 
significant.  In recent times, some pension funds have started clearing centrally part of 
their derivatives portfolio on a voluntary basis, typically as clients of clearing members. 

2  

“Report  from  the  Commission  assessing  whether  viable  technical  solutions  have  been  developed  for  the 
transfer by pension scheme arrangement of cash and non-cash collateral as variation margins and the need 
for any measures to facilitate those viable technical solution”, COM (2020) 574 final. 

3   ESMA,  “First  Report  for  consultation  –  Central  Clearing  Solutions  for  Pension  Scheme  Arrangements”, 

April 2020. 

4   ESMA,  “Report  to  the  European  Commission  –  Report  on  the  Central  Clearing  Solutions  for  Pension 

Scheme Arrangements (No. 2)”, December 2020. 

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Some  of  them  also  started  using  solutions  designed  by  certain  CCPs5  to  facilitate 
central clearing by PSAs, namely so-called “facilitated” access models to their cleared 
repo  platforms.  Such  models  should  improve  PSAs’  capacity  to  resort  to  the  repo 
market  for  their  liquidity  needs6.  The  move  towards  central  clearing  has  also  been 
increasing  overtime  due  to  requirements  applicable  to  bilateral  trades,  which  are 
expected  to  increase  the  liquidity  available  in  the  central  clearing  space  vis-à-vis  the 
bilateral one7.  

The Report also highlighted the difficulties which PSAs may face in accessing the repo 
market to source liquidity in times of stress, which may be also linked to the fact that 
clearing  members  are  not  always  willing  or  able  to  provide  collateral  transformation 
services to PSAs in stressed market conditions. 

3.  MAIN  OUTCOMES  OF  ESMA’S  PUBLIC  CONSULTATION  AND  FURTHER 

DISCUSSIONS WITH STAKEHOLDERS 

3.1  Outcomes of ESMA’s public consultation 

The outcomes of the public consultation held by ESMA broadly confirmed the overall 
analysis included in the first Commission Report and provided additional opportunity to 
complement  the  findings  with  further  quantitative  data.  ESMA  received  responses8 
from  a  broad  range  of  stakeholders,  including  among  others  asset  managers  (which 
have  PSAs  as  their  clients),  trade  associations,  central  counterparties.  The  range  of 
stakeholders  who  replied  to  the  consultation  was diverse,  enabling  the  collection  of  a 
wide  range  of  views  on  different  aspects  of  the  possible  solutions.  According  to 
ESMA’s analysis, consultation responses confirm that a large majority of stakeholders 
are looking forward to a situation in which PSAs would be able to clear centrally and 
that a majority of PSAs do want to clear.  

The consultation  confirmed that some PSAs are already voluntarily  clearing a part of 
their  portfolio,  including  in  order  to  avoid  being  caught  under  the  rules  on  initial 
margins for bilateral trades. They do so as clients of clearing members. In certain cases, 
PSAs also make use of facilitated access to the cleared repo markets offered by certain 
CCPs. According to data reported to ESMA by the Dutch National Bank9, the clearing 
rates for Euribor and Libor interest rate swaps (IRS) for the Dutch pension funds in the 
third  quarter  of  2020  amounted  to  22%  on  average  for  large  pension  funds  (ranging 

5  

In the EU, Eurex Clearing has established such a model, possibly also together with “facilitated access” to 
the cleared OTC market. To the Commission best knowledge, LCH SA is also in the process of developing 
a “facilitated access” solution. See COM (2020) 574 final.  

6        A  repurchase  agreement  (“repo”)  is  an  agreement  to  sell  securities  at  a  given  price  combined  with  an 
agreement to repurchase those securities at an agreed price at a later date. The repo market brings together 
firms  which  provide  collateral  in  exchange  for  cash  and  firms  which  provide  cash  in  exchange  for 
collateral. 

7   ESMA,  “Report  to  the  European  Commission  -  Report  on  the  Central  Clearing  Solutions  for  Pension 

Scheme Arrangements (No. 2)” , December 2020. 

8   ESMA  received  19  individual  or  trade  association  responses,  including  2  confidential  ones,  and  1  joint 

response from 10 stakeholders from the pension fund industry.  

9   Based on EMIR reporting data. 

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from  3  to  26%),  25%  on  average  for  middle-large  pension  funds  (ranging  from  0  to 
46%) and 37% on average for small pension funds (ranging from 0 to 100%). The data 
shows  broad  variability  across  firms.  In  Denmark,  according  to  analysis  by  the 
Danmarks  Nationalbank,  Danish  PSAs  clear  at  a  CCP  approximately  42%  of  their 
interest rate derivatives – also with considerable variability across firms. 

PSAs find benefits in central clearing, irrespective of the upcoming obligation to do so. 
According  to  ESMA,  as  the  main  advantage  they  quote  liquidity  which  characterises 
cleared  products,  execution  efficiencies  and  other  cost  considerations.  Some 
respondents  to  the  public  consultation  indicated  that  already  now  PSAs  experience  a 
difference in cost between bilateral and centrally cleared contracts. They reported that 
executing  a  bilateral  30-year  IRS  with  a  50-million  nominal  amount  can  have  a 
marginally  higher  cost  than  executing  a  centrally  cleared  30-year  IRS,  and  that 
unwinding the former can be more expensive.  

The consultation also confirmed that the main challenge with respect to central clearing 
for PSAs is the issue of the cash variation margin. Other challenges which have been 
mentioned include the cost of clearing, which would be linked to the amount of capital 
banks  are  required  to  hold  vis-à-vis  client  positions  under  the  bank  capital  rules;  the 
possibility for clearing members to terminate the contracts with their clients at a short 
notice10 and the issues PSAs may encounter if their large positions needed to be ported 
to  another  clearing  member.  It  is  to  be  noted,  however,  that  in  the  bilateral  clearing 
space PSAs may also be exposed to the default of their trading counterparties. 

Overall,  participants  to  the  consultation  agree  that  the  solution  to  the  issue  of  PSAs 
central  clearing  should  strike  the  right  balance  between  the  objectives  of  financial 
system resilience and not imposing disproportionate costs to pensioners, and should be 
able to work in both normal and stressed market conditions. 

3.2  Potential impacts of migration towards mandatory central clearing  

The  quantitative  information  collected  by  ESMA  through  the  public  consultation 
provides an overview of the potential impact of central clearing for PSAs in terms of: i) 
initial  margin;  ii)  cash  allocation;  iii)  yield  drag;  and  iv)  liquidity  impacts  in  case  of 
stress.  

i) 

Impact on initial margin 

According to a 2018 study by ISDA and PensionsEurope, a clearing mandate capturing 
Dutch  and  Danish  pension  funds  would  increase  cleared  initial  margin  (IM)  by 
approximately EUR 7.4 billion if only new trades had to be cleared, by EUR 26 billion 
if 50% of the back-book were to be cleared, and by EUR 44 billion if all the back-book 
were to be cleared11.  

10   Client clearing contracts often contain a 90-day termination notice clause. 
11   PensionsEurope and ISDA, “Potential demand for clearing by EU pension funds”, 2018. 

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Furthermore, large PSAs could be assessed as large risk contributors by CCPs, as they 
often  carry  one-directional  swap  positions.  One  of  them  reported  to  ESMA  that  its 
additional  liquidity  add-ons  on  initial  margin  could  be  so  significant  that  it  could 
consider setting a ceiling on the number of swaps it would be able to clear12.  

ii) 

Impact on cash allocations  

The  expiry  of  the  central  clearing  exemption  could  oblige  PSAs  to  set  aside  cash  to 
allow  them  to  handle  potential  margin  calls.  In  case  of  derivative  exposures,  this 
reduces  counterparty  credit  risk,  but  simultaneously  increases  liquidity  risk.  In  the 
prevailing low-yield environment, holdings of cash and other liquid assets have become 
increasingly  costly.  In  the  case  of  investment  funds,  this  has  incentivised  them  to 
reduce  such  holdings13.  The  public  consultation  indicated  that  while  some  pension 
funds hold approximately 2% of assets in cash, others have a zero strategic allocation to 
cash. ESMA’s report, based on response to the public consultation, shows that if a PSA 
wanted to be able to meet 99.8% of variation margin calls, and assuming that 30% of its 
cash allocation is available on a one-day horizon, it would need to allocate 7.8% of its 
assets to a cash portfolio. This amount would rise to 10.9% should it want to be able to 
meet 99.95% of variation margin calls, and would decline to 5.3% should it want to be 
able to meet 99% of the calls. 

iii) 

Potential reduction in returns 

An  extra  allocation  to  cash  by  PSAs  to  meet  potential  margin  calls  would  mean  a 
reduction  on  annual  returns.  The  ESMA  report  suggests  that  should  a  PSA  have  to 
allocate 5% - 10% of its investment portfolio to cash, the resulting reduction in annual 
returns could be approximately 0.17% - 0.33% annually in the current low interest rate 
environment (with returns around 3.17%)14. If historical returns are considered instead 
(around  6%  for  the  Dutch  pension  sector  over  the  last  15  years,  according  to  OECD 
data), the reduction would be in the range of 0.3-0.6%.  

Other  asset  managers  responding  to  the  consultation  reported  that  their  PSA  clients 
already  hold  a  sizeable  cash  buffer  and  as  such  the  costs  for  them  of  funding 
temporarily high liquidity demands would be very low. 

In  this  regard,  it  should  also  be  kept  in  mind  that  pension  funds  are  likely  to  face  a 
prolonged period of low returns and may find it difficult to match historic returns. Even 
if recent monetary policy action by central banks have reversed significant asset price 
declines, pension funds are likely to face lower interest rates over the medium- to long-
term.  The  challenge  will  be  to  match  historic  returns  in  a  potentially  volatile,  low 
interest  rate  environment.  In  such  a  scenario,  even  moderate  yield  drag  may 
unfavourably impact on returns for pensioners. For instance, ECB analysis15 shows that 

12   ESMA,  “Report  to  the  European  Commission  -  Report  on  the  Central  Clearing  Solutions  for  Pension 

Scheme Arrangements (No. 2)”, December 2020. 

13   ECB, “Financial Stability Review”, May 2020. 
14   From responses to ESMA’s consultation. 
15   ECB, “Financial Stability Review”, May 2020. 

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in  the  case  of  insurers  should  the  current  interest  rate  environment  continue,  average 
coupon income is projected to decline from 2.8% in 2019 to 1.7% in 2030, as securities 
that yield higher returns mature. Guaranteed rates are also estimated to decline. 

iv) 

Liquidity impact in case of stress 

The liquidity needs of PSAs to meet variation margin under a stress scenario based on a 
1% shift in rates was discussed in the first Report by the Commission16, which reported 
data  from  an  Economic  and  Bourse  Consult  study  of  2014  and  recent  Eurosystem 
analyses  on  the  issue17.  An  increase  in  interest  rates  would  trigger  CCP  variation 
margin calls on pension funds’ interest rate swap portfolios. Using Dutch pension funds 
as an example (they hold around 89% of IRSs of euro-area pension funds, according to 
data  available  to  the  Eurosystem),  the  Eurosystem  simulated  the  impact  of  a  one-day 
+100 basis point parallel shift in the  yield curve. Under the simulated stress scenario, 
variation  margin  calls  on  interest  rate  swaps  held  by  Dutch  pension  funds  could  be 
between EUR 36 billion and EUR 47 billion, resulting in an aggregate cash shortfall of 
EUR  6  billion  to  EUR  15  billion  (for  the  whole  euro-area  pension  funds,  this  could 
amount  up  to  EUR  17  billion).  At  the  upper  bound  estimate,  55%  of  Dutch  pension 
funds would not have sufficient cash to cover their variation margin calls. The shortfall 
would  be  concentrated  within  a  small  number  of  funds  with  relatively  low  variation 
margin payments.  

Responses to ESMA’s public consultation in this regard show that, under a scenario of 
100 basis point shift  in rates, the cash  variation margin  requirement would  amount to 
circa EUR 95bn across Dutch, Danish and Irish PSAs using swaps. 

During the recent Covid 19 market turmoil, the daily variation margin calls on funds’ 
derivative exposures rose fivefold18. Using investment funds as an example and based 
on  the  partial  reporting  of  variation  margin  in  EMIR  data,  the  daily  variation  margin 
calls  on  euro  area  funds  increased  from  around  EUR  2  billion  in  the  first  half  of 
February  2020  to  over  EUR  10  billion  in  the  week  beginning  16  March  2020.  The 
highest increase – by around 6.5 times – was reported on portfolios composed of equity 
derivatives, followed by interest rate derivatives (fivefold increase) - which are the ones 
PSAs  most  typically  hold  -  and  currency  (fourfold  increase)  portfolios.  There  is 
evidence  that  to  meet  margin  calls,  some  euro  area  insurers  and  pension  funds 
liquidated shares held in money market funds. 

It seems a substantial number of euro area investment funds have faced liquidity strains 
from  the high margin  calls, but  they were  generally able to  meet  them19. The interest 
rates  cuts  and  bond  buying  programmes  from  central  banks  contributed  to  insulating 

16   COM(2020) 574 final of 23rd September 2020. 
17   ECB, “Financial Stability Review”, May 2020. 
18   ECB, “Financial Stability Review”, May 2020. 
19   ECB, “Financial Stability Review”, May 2020. 

6 

 
 
 
 
 
 
                                                           
market participants, including pension funds, from some of the worst potential impacts 
of  the  crisis.  Furthermore,  it  seems  funds  could  raise  cash  during  the  turmoil  by 
engaging  in  repo  transactions,  selling  assets  (e.g.  money  market  fund  shares)  or 
drawing on credit lines. However, as illustrated in the first Commission report, strains 
were reported in accessing liquidity for pension funds. 

In  the  analysis  above,  assuming  PSAs  could  source  their  additional  cash  needs  under 
the designed stress scenario via the repo market, the liquidity needs of euro-area PSAs 
would remain small as compared to the amount of reverse repo transactions outstanding 
(a  proxy  for  the  size  of  the  European  repo  market).  Outstanding  reverse  repo 
transactions in December 2019 amounted to about EUR 1.9 trillion. Assuming that the 
borrowing needs of other Euro area PSAs are similar to those of Dutch PSAs, the cash 
borrowing  needs  for  all  Euro  area  PSAs  would  be  likely  to  remain  below  2%  of  the 
overall outstanding reverse repo transactions20. 

According to ESMA, and as also reported by ICMA21, the EU repo market, for the most 
part,  held  up  well  during  the  Covid-19  market  turmoil.  Nevertheless,  repo  markets 
faced some adverse conditions at the height of the crisis in February/ March, as demand 
for repo increased and the dealers capacity to intermediate that demand was relatively 
constrained22.  This  may  have  limited  the  ability  of  many  firms  to  access  the  repo 
market,  which  was  needed  to  manage  intraday  liquidity  and  collaterals.  According  to 
some sources, an illiquid money market impaired the intermediation of liquidity from 
banks  to  non-banks23.    Overall,  as  reported  by  ESMA,  the  cleared  repo  markets 
operated efficiently and effectively throughout the crisis, providing continued access to 
derivative products – even if not without spikes in margin calls.  

Going forward, repo markets are likely to continue playing a central role in meeting the 
central  clearing  challenge;  however,  pension  fund  participation  in  repo  markets  in 
Europe remains muted, especially when compared to the US24. 

3.3 Initiatives proposed in the public consultation  

In  order  to  promote  progress  towards  central  clearing  for  PSAs,  respondents  to  the 
public  consultation  proposed  some  initiatives,  as  illustrated  in  ESMA’s  report.  Such 
initiatives  mostly  aim  at  improving  the  solutions  currently  used  by  PSAs  to  clear 
centrally,  that  is  client  clearing  and  CCPs’  facilitated  access  models.  These  are 
emerging as the two axes around which the next steps of this work should focus. 

20       COM(2020) 574 final of 23rd September 2020. 
21   International  Capital  Market  Association,  “The  European  repo  market  and  the  Covid-19  crisis”,  April 

2020. 

22   International  Capital  Market  Association,  “The  European  repo  market  and  the  Covid-19  crisis”,  April 

2020. 

23   D’Avernas,  A.,  Vandeweyer,  Q.  and  Darracq  Pariès,  M.  (2020),  “Unconventional  monetary  policy  and 

funding liquidity risk”, Working Paper Series No 2350. 

24   Eurex, “Derivatives markets after the Covid-19 crisis - A review of the Digital Derivatives Forum”, 2020. 

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As  for  client  clearing,  input  included  in  ESMA’s  report  and  discussions  within  the 
Commission expert group show that enhancing clearing members’ capacity to provide 
collateral transformation services to their direct clients would be beneficial to improve 
PSAs’ access to liquidity when needed. Banks are well positioned to facilitate collateral 
transformation and have been doing this for a long time. 

As indicated in ESMA’s report, banks pointed to some constraints which make it harder 
for  them  and  for  PSAs  to  support  the  clearing  obligation  for  PSAs:  these  relate  in 
particular to the leverage ratio, risk-weighted assets, funding. In particular, as illustrated 
in ESMA’s report based on the public consultation, a more favourable capital treatment 
for repos/reverse repos would help stimulate repo activity. 

As for facilitated access  models offered by CCPs, such modes are already being used 
by some large PSAs to access the cleared repo market. According to CCPs participating 
in the public consultation, such a solution would require a clear signal by regulators, via 
regulatory amendments and a clear end-date for the PSA clearing exemption, for such a 
solution to be more broadly adopted. Some asset managers with large PSAs as clients 
reported that these types of models are an encouraging avenue, and some respondents 
pointed to the reliability of EU cleared repo markets over the years in terms of available 
liquidity,  also  in  times  of  stress.  Some  further  operational  improvements  could  be 
brought to such CCP solutions in order to better meet the needs of PSAs: on the CCP 
side, it emerged from the consultation that further improvements could be envisaged. 

A  number  of  regulatory  measures  were  thus  proposed  by  the  respondents  to  the 
consultation. In particular, the following proposals from stakeholders are mentioned in 
ESMA’s report: 

-  A more favourable treatment of repos/reverse  repos in the context  of the leverage 

ratio; 

-  A re-calibrated methodology for the calculation of the leverage ratio, so as to avoid 

window-dressing by banks at specific reporting deadlines during the year25; 

-  Consider  establishing  a  specific  category  of  exposures  to  pension  funds,  with 

reduced risk weights (better reflecting their high creditworthiness);  

-  Address  specifically  the  role  of  clearing  agents  (the  banks  which  allow  PSAs  to 
access CCPs in the context of the facilitated access models) in banking regulation; 
-  Under Solvency II, consider granting to PSAs and insurance companies which are 
direct  members  of  a  CCP  in  the  context  of  facilitated  access  models  the  same 
preferential treatment which is available for clearing members under the CRR; 
-  Other regulatory changes concerning UCITS and AIFs, with the aim of encouraging 

central clearing for the buy side. 

In  addition,  the  ESRB  made  proposals  to  enhance  the  liquidity  risk  framework 
including for PSAs, also by establishing a specific liquidity buffer in certain cases. 

25   In  this  regard,  it  is  to  be  noted  that  the  Basel  Committee  on  Banking  Supervision  and  EU  authorities 
recently  took  action  to  tackle  this  issue,  by  enhancing  leverage  ratio  disclosure  requirements.  These 
provisions will be applied by EU banks from June 2021.  

8 

 
 
 
                                                           
4.  CONCLUSION 

According to EMIR Refit, the central clearing exemption expires in June 2021 and may 
be  extended  by  the  European  Commission  twice,  by  means  of  delegated  acts,  by  one 
year each time.  

The  European  Commission’s  overall  analysis  of  the  main  issues  surrounding  PSAs’ 
central  clearing  as  outlined  in  the  first  Report  issued  in  September  2020  are  broadly 
confirmed  by  the  results  of  ESMA’s  public  consultation.  That  consultation  also 
provided some further quantitative insights.  

There has been progress in the last years towards central clearing for PSAs, and indeed, 
as  outlined,  PSAs  are  partially  moving  towards  central  clearing  on  a  voluntary  basis. 
This is also the outcome of various regulatory and market forces.  

Nevertheless,  in  order  to  progress  further  towards  a  sustainable  central  clearing 
landscape for PSAs, the Commission is of the view that extending the PSA exemption  
would be needed for several reasons. First, it would offer the possibility to bring further 
refinements to CCPs’ facilitated access models. Second, it would allow a more in-depth 
assessment of the appropriateness and feasibility of introducing any potential regulatory 
changes  which  could  support  a  mandatory  central  clearing  solution.  Third,  it  would 
allow  alternative  solutions  to  mature  as  money  markets  could  still  be  volatile  as  the 
economic fallout from the Covid-19 pandemic unfolds. Letting the clearing obligation 
exemption  for  PSAs  expire  in  June  2021  seems  premature,  in  particular  as  concerns 
may  still  arise  over  the  availability  of  liquidity  in  the  system  to  meet  the  demand  for 
variation margin. Finally, an extension is in line with the advice provided by ESMA, in 
co-operation with EBA, EIOPA and the ESRB.   

The  Commission  is  therefore  proposing  to  adopt  a  delegated  act  which  would  extend 
the central clearing exemption until June 2022. 

In the coming months, DG FISMA will continue to explore and assess in more depth 
the  different  solutions  and  proposals  brought  forward  by  industry  stakeholders,  in 
cooperation with the dedicated expert group and the relevant Commission Services. 

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