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: 2022-06-09
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission against Racism and Intolerance
Subjects: financial derivative, financial legislation, financial risk, financial supervision, financial transaction, pension fund, pension scheme, technical standard

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 9.6.2022  COM(2022) 254 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 
The  European  Market  Infrastructures  Regulation1  (EMIR)  contains  a  temporary  exemption 
from  the  central  clearing  obligation  for  entities  operating  Pension  Scheme  Arrangements 
(PSAs),  in  relation  to  certain  types  of  over-the-counter  (OTC)  derivatives2.  The  exemption 
has  been  extended  several  times  since  20123.  Currently,  it  runs  until  18  June  2022.  The 
Commission may adopt a delegated act, extending the exemption for the last time until June 
2023. 

Requiring  PSAs  to  clear  OTC  derivative  contracts  at  a  Central  Clearing  Party  (CCP)  could 
lead  them  to  transform  a  significant  amount  of  their  assets  for  cash  or  other  highly  liquid 
assets,  such  as  bank  deposits,  money  market  fund  shares,  repurchase  agreements  or  credit 
lines,  in  order  to  be  able  to  provide  ‘margin’4  to  CCPs.  The  obligation  to  clear  and  the 
associated requirement to provide margin5 relates in particular to the need to ensure sufficient 
cash  for  variation  margin6  that  needs  to  be  covered  regularly  and  at  short  notice.  As  such, 
there  is  a  risk  that  prematurely  requiring  PSAs  to  clear  OTC  derivative  contracts  centrally 
may lead to PSAs divesting a significant proportion of their assets for cash to build up capital 
buffers  in  order  to  meet  possible  margin  requirements  of  CCPs,  thus  reducing  resources 
allocated  to  investment  that  generates  income  to  cover  future  pensions.  Nevertheless,  the 
ultimate aim of the Regulation remains central clearing for PSAs as soon as possible. 

1 Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories. 
2  Pursuant  to  Art.  2(10)  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. Pursuant to 
Art.  89(1)  EMIR,  the  exemption  concerns  OTC  derivatives  which  are  objectively  measurable  as  reducing 
investment risks that directly relate to the financial solvency of PSAs. 
3 The exemption has most recently been extended in May 2021 by means of Commission Delegated Regulation 
(EU)  2021/962  extending  the  transitional  period  referred  to  in  Article  89(1),  first  subparagraph,  of  Regulation 
(EU) No 648/2012. 
4  Margin  is  the  collateral  that  an  investor  has  to  deposit.  EMIR  distinguishes  between  initial  and  variation 
margin. Initial margin is intended to cover current and potential future fluctuations in value. 
5    Entities  operating  pension  scheme  arrangements,  the  primary  purpose  of  which  is  to  provide  benefits  upon 
retirement,  usually in the form of payments for life, but also as payments made for a temporary period or as a 
lump sum, typically minimise their allocation to cash in order to maximise the efficiency and the return for their 
policy  holders.  See  Regulation  (EU)  No  648/2012  on  OTC  derivatives,  central  counterparties  and  trade 
repositories, Recital 26. 
6  Variation  margin  is  collateral  collected  by  a  party  regularly  to  reflect  changes  to  the  market  value  of  an 
outstanding contract. Since variation margin calls have to be typically paid at short notice (e.g. overnight or even 
intra-day), the cash position plays a central role as cash is the most widely used instrument to meet these calls. 

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Article 85 (2) of EMIR requires the Commission to prepare annual reports assessing if viable 
technical solutions have been developed for the transfer by pension scheme arrangements of 
cash and non-cash collateral as variation margin and the need for measures to facilitate their 
uptake. This is the third Commission Report and it presents the progress made to date. 

2.  INPUT RECEIVED 
Since  the  entry  into  force  of  EMIR  REFIT  on  17  June  20197,  work  has  been  going  on  in 
various  fora  monitoring  the  progress  towards  central  clearing  by  PSAs.  Input  has  been 
received  from  the  European  Securities  and  Markets  Authority  (ESMA),  European  Banking 
Agency  (EBA),  European  Insurance  and  Occupational  Pensions  Authority  (EIOPA)  and  the 
European  Systemic  Risk  Board  (ESRB),  as  well  as  from  market  participants  via  the  PSA 
expert  group8.  ESMA,  in  cooperation  with  EBA,  EIOPA  and  the  ESRB,  submitted  annual 
reports  to  the  Commission  assessing  the  issue,  as  required  by  EMIR.  The  first  report9  was 
received  by  the  Commission  in  April  2020.  A  second  report10  was  submitted  to  the 
Commission in December 202011. The latest12 ESMA report was sent to the Commission in 
January 2022. 
Taking into account the input received, the Commission has published two reports13,14 so far 
assessing  the  liquidity  conditions  as  well  as  exploring  various  clearing  arrangements  for 
pension funds. These reports laid out the arguments relating to the subsequent prolongations 
of the exemption.15 

In  the  report  of  January  2022,  ESMA  concluded  that  the  description,  analysis  and  findings 
detailed in the extensive second report were still valid. It considered unlikely that, despite the 
efforts  of  stakeholders  and  regulators,  there  is  a  unique  solution  to  address  PSAs  concerns. 
Rather a mix of solutions facilitating access to liquidity or easing the pressure of carrying out 
clearing should be pursued. The focus of the latest report was therefore on assessing the level 
of  operational  readiness  of  PSAs  to  clear  their  OTC  interest  rate  derivatives.  ESMA 
concluded  that  PSAs  are  largely  ready  from  an  operational  perspective,  noting  a  mix  of 
solutions  available  to  PSAs,  such  that  ESMA  believed  there  was  less  reason  to  treat  PSAs 
differently  compared  to  other  market  participants.  Furthermore,  ESMA  pointed  out  that  the 
prolongation  of  the  clearing  exemption  should  be  seen  in  the  wider  context  of  building 

7 Regulation (EU) 2019/834 of the European Parliament and Council amending Regulation (EU) No 648/2012 as 
regards  the  clearing  obligation,  the  suspension  of  the  clearing  obligation,  the  reporting  requirements,  the  risk-
mitigation  techniques  for  OTC  derivative  contracts  not  cleared  by  a  central  counterparty,  the  registration  and 
supervision of trade repositories and the requirements for trade repositories (EMIR REFIT). 
8 As required by Art. 85(2) EMIR, 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. 
9  Central  clearing  solutions  for  pension  scheme  arrangements,  European  Securities  and  Markets  Authority,  2 
April 2020, ESMA70-151-2823. 
10  Report  on  the  central  clearing  solutions  for  pension  scheme  arrangements  (No.2),  European  Securities  and 
Markets Authority, 17 December 2020, ESMA70-151-3248. 
11 Ibid. See Chapter 4 “Public Consultation” for details. The findings of the second report were supported by an 
extensive public consultation. It collected views from stakeholders, updated data on European PSAs’ portfolios 
and on the quantitative impact of moving their OTC derivative portfolios to central clearing. 
12  The  clearing  obligation  for  pension  scheme  arrangements,  European  Securities  and  Markets  Authority,  25 
January 2022, ESMA70-451-110. 
13 COM (2020) 574 final. 
14 COM (2021) 224 final. 
15  The  initial  exemption  was  provided  by  EMIR  until  16  August  2018,  while  EMIR  Refit  provided  a  further 
extension until June 2021, potentially to be extended by another year or two. 

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clearing capacity in the EU and increasing the attractiveness of EU CCPs, to which the end of 
this exemption can also contribute.   

Nevertheless,  according  to  ESMA,  a  number  of  operational  considerations  would  justify 
granting  PSAs  more  time  before  subjecting  them  to  the  clearing  obligation.  In  particular, 
ESMA underlined that PSAs and the relevant market participants need time to finalise their 
clearing  and  collateral  management  arrangements.  It  also  added  that  the  Commission’s 
decision  must  be  communicated  with  sufficient  notice  allowing  all  affected  parties  to  adapt 
their  implementation  plans.  Taking  the  above  into  account,  ESMA  recommended  a  further 
prolongation of the clearing exemption until 19 June 2023. 

Since the last Commission report in May 2021, the expert group on PSAs has met three times. 
Participants  confirmed  that  PSAs  are  largely  ready  to  clear,  have  clearing  arrangements  in 
place  and  clear  some  trades  voluntarily.  At  the  same  time,  PSAs  underlined  that  the 
underlying issue of access to cash remains. To address this, in particular the cleared repo has 
been discussed by the expert group on PSAs as a potential liquidity solution. PSAs however 
noted that while this is a step in the right direction, over-reliance on the cleared repo market 
would leave them vulnerable to a residual liquidity risk in extreme market circumstances. 

3.  POLITICAL CONTEXT 

The UK is a key hub for central clearing of derivatives and remains an important location for 
clearing  by  EU  market  players,  which  over  the  years  have  built  up  a  significant  amount  of 
positions at the UK CCPs. Many EU PSAs currently have clearing arrangements both in the 
EU and the UK, but analysis shows that they tend to clear in larger proportions in the UK. In 
order to avoid financial stability risks for the EU, in September 2020 the Commission adopted 
a temporary equivalence decision covering the UK regulatory and supervisory framework for 
CCPs, running initially until June 202216, and subsequently prolonged until  30 June 202517.  
In  the  meantime,  EU  market  participants  were  urged  to  reduce  their  exposures  to  the  UK 
CCPs, as the extent of such exposures may make it challenging for EU authorities to manage 
financial stability in case of stress.  

In January 2021, the Commission set up a working group including the ESAs, the ESRB, the 
ECB  and  the  SSM  to  assess  the  opportunities  and  challenges  of  transferring  derivatives 
clearing from the UK to the EU CCPs. The group also reached out to a range of stakeholders 
to  collect  views  and  input.  The  discussions  in  the  group  confirmed  the  risks  for  the  EU 
stemming  from  the  exposures  to  UK  CCPs.  Such  risks  were  also  highlighted  in  the 
assessment of systemic third-country CCPs carried out by the ESMA under the framework of 
EMIR 2.218, finalised in December last year19. 

16  Commission  Implementing  Decision  (EU)  2020/1308  determining,  for  a  limited  period  of  time,  that  the 
regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern 
Ireland is equivalent, in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the 
Council. 
17  Commission  implementing  Decision  (EU)  2022/174  determining,  for  a  limited  period  of  time,  that  the 
regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern 
Ireland is equivalent, in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the 
Council. 
18  Regulation  (EU)  2019/2099  of  the  European  Parliament  and  of  the  Council  of  23  October  2019  amending 
Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs 
and requirements for the recognition of third-country CCPs, OJ L 322, 12.12.2019. 
19  ESMA  assessment  report  under  Article  25(2c)  of  EMIR  available  at:  https://www.esma.europa.eu/press-
news/esma-news/esma-publishes-results-its-assessment-systemically-important-uk-central. ESMA found that the 
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Therefore,  in  order  to  support  efficient  and  competitive  clearing  services,  the  Commission 
will  come  forward  in  the  second  half  of  2022  with  measures  to  make  EU  CCPs  more 
attractive  to  market  participants;  by  making  the  EU  a  more  attractive  and  cost-efficient 
clearing hub and by strengthening the EU’s supervisory framework for CCPs to better manage 
associated risks. 

In  this  context,  bringing  an  end  to  the  PSA  exemption  could  help  develop  the  EU  liquidity 
pool, potentially attracting further clearing in the EU. 

4.  EVOLUTION SINCE THE INITIAL COMMISSION REPORTS 

The temporary exemption from the clearing obligation aimed to give PSAs and other relevant 
market  participants  sufficient  time  to  differentiate  sources  of  liquidity  to  cover  variation 
margins  needs  and  to  develop  operational  capacity  to  handle  clearing  of  large  derivative 
portfolios. 

4.1 

Liquidity 

The  temporary  clearing  exemption  for  PSAs  aims  to  mitigate  the  impact  that  the  clearing 
obligation would have on their cash allocation. The most common reason for the use of OTC 
derivatives by PSAs is the insufficient number of issuances of long dated high-quality bonds, 
which  restricts  their  ability  to  manage  the  interest  rate  risks  adequately20.  This  gives  rise  to 
concerns  about  the  access  to  cash  during  periods  of  market  stress21,  when  margin  calls 
increase and PSAs compete with other market entities for liquidity.   

Liquidity  conditions  for  PSAs  have  evolved  favourably  since  the  onset  of  the  EMIR 
obligation to centrally clear certain classes of OTC derivatives, even holding up well during 
recent  periods  of  volatility.  With  the  exception  of  March-April  2020,  when  daily  variation 
margin calls were significantly higher than average flows normally observed22, PSAs have not 
faced liquidity problems related to  margin  calls. In March 2020, variation margin  payments 
were large compared with the highly liquid asset held by pension funds and put some of them 
under liquidity strain23. Nevertheless, pension funds were generally able to meet them24. 

During periods of market stress, the repo market can become an important source of liquidity 
for  buy-side  participants,  including  PSAs.  In  recent  years,  market  participants  have  been 
active in accommodating PSAs and other entities in the repo clearing ecosystem. Eurex, the 
German  CCP,  set  up  a  “direct  access”  model  to  facilitate  access  to  clearing.  This  includes 

Swapclear service provided by LCH Ltd for interest rate derivatives denominated in euro and Polish zloty  and 
the credit default swap and short-term interest rate derivatives segments of ICE Clear Europe Ltd for products 
denominated in euro are of substantial systemic importance to the EU or one or more Member States. 
20 Report to the European Commission on the central clearing solutions for pension scheme arrangements (No.2), 
European Securities and Markets Authority, 17 December 2020, ESMA70-151-3248. 
21 Significant fluctuations in variation margin in March 2020 illustrate this concern. Between 11 and 23 March 
2020  European  insurance  corporations  and  pension  funds  (ICPF)  had  to  pay  additional  EUR  50  billion  in 
variation  margin  to  their  counterparties.  More  than  90%  of  this  was  posted  by  Dutch  ICPFs,  which  have 
portfolios  of  exceptionally  large  size  and  duration.  Source:  “Interconnectedness  of  derivatives  markets  and 
money  market  funds  through  insurance  corporations  and  pension  funds”,  European  Central  Bank,  Financial 
Stability Review, November 2020. 
22 Review of margining practices – Consultative report, Bank for International Settlements, October 2021. 
23  “Interconnectedness  of  derivatives  markets  and  money  market  funds  through  insurance  corporations  and 
pension funds”, European Central Bank, November 2020. 
24 For instance, the overall variation margin posted by Dutch ICPFs in March 2020 reached around 77% of their 
highly liquid asset holdings, although this is likely to mask some heterogeneity. Source: “Interconnectedness of 
derivatives  markets  and  money  market  funds  through  insurance  corporations  and  pension  funds”,  European 
Central Bank, Financial Stability Review, November 2020. 

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both  repos  and  interest  rate  swaps.  More  recently,  a  second  EU  clearing  house25  opened  a 
sponsored  clearing  repo  model  offering26,  adding  more  collateral  transformation  capacity. 
These  models  are  expected  to  continue  to  mature  over  2022  and  2023,  leading  to  increased 
uptake by clearing sponsors and buy-side participants. 

Despite  this,  PSAs  continue  to  report  concerns  about  their  liquidity  situation.  Although 
liquidity  has  remained  robust  so  far,  it  may  tighten,  especially  in  the  market  for  general 
collateral27, as monetary policy normalises28 over the medium-term. According to PSAs, this 
could lead to them having to sell holdings such as equities, corporate bonds and government 
bonds.  In such an  environment, they would be selling in  a declining market,  and such asset 
sales could further exacerbate downward pressure on falling asset prices. 

That  being  said,  alternative  sources  of  cash  flow  could  become  available.  For  instance,  the 
extension of the TARGET229 and T2S30 operating hours later this year could help ensure that 
funding transactions from EUR denominated repo facilities can be settled when margin calls 
arrive. Although these new access models appear more suited to the needs of large PSAs, they 
allow banks to release balance sheet capacity, potentially also to the benefit of smaller PSAs. 
PSAs however call for the introduction of a central bank link to the cleared repo platform, so 
as  to  allow  central  banks  to  intervene  in  the  repo  market  and  act  as  a  provider  of  cash  to 
pension funds (as well as other market participants) using cleared repos. 

Nevertheless,  it  should  be  noted  that  neither  ESMA  in  its  three  annual  reports  nor  the  PSA 
expert group indicated that at any point did liquidity conditions deteriorate to such an extent, 
even  in  spring  2020,  so  as  to  permanently  threaten  PSAs  ability  to  meet  margin  calls. 
Similarly,  clearing  services  for  government  bonds  and  repo  transactions  remained  resilient 
and stable, unlike the liquidity experienced in the bilateral repo market. Even prior to central 
bank  intervention,  no  money  market  funds31  suspended  redemptions  and  the  repo  market 
continued  to  function,  meaning  the  PSAs  continued  to  be  able  to  access  liquidity. 
Nevertheless,  in  time  of  stress  PSAs  may  indirectly  benefit  from  central  bank  operations 
aiming to support vulnerable market segments, as was the case in March-April 2020 when the 
ECB  provided  lending  facilities  for  banks  to  buy  assets  from  money  market  funds  or 
extending collateral to unsecured bank bonds32. 

4.2 

Operational readiness to clear 

25 LCH RepoClear SA clears first euro repo by Sponsored Member, LCH Press Release, 10 December 2021   
26  These  models  allow  buy-side  firms  to  access  clearing  with  the  support  of  a  bank  (“clearing  agent”  or 
“sponsor”),  which  would  typically  facilitate  margin  payments  and  provide  default  fund  contributions  for 
transactions. 
27 General collateral is a set of security issues which trade in the repo market at the same or a very similar repo 
rate. These securities can therefore be substituted for one another without changing the repo much. Liquidity in 
the market for general collateral repo is key for PSAs.  
28  “Monetary  policy  in  an  uncertain  world”,  Speech  by  Ch.  Lagarde,  President  of  the  European  Central  Bank, 
Frankfurt am Main, 17 March 2022 
29 TARGET2 is the real-time gross settlement system owned and operated by the Eurosystem. It settles payments 
related to the Eurosystem’s monetary policy operations, as well as bank-to-bank and commercial transactions.  
30 TARGET2-Securities (T2S) is a common platform on  which securities and cash can be transferred between 
investors across Europe, using harmonised rules and practices. Currently 20 European countries use T2S.   
31 A money market funds invest in liquid, short-term instruments (typically up to 1 year maturity). These funds 
offer investors low risk and the ability to draw down liquidity (disinvest) when needed.  
32  “EU  money  market  fund  regulation  –  legislative  review”,  European  Securities  and  Markets  Authority,  26 
March 2021, ESMA34-49-309 

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PSAs are largely ready to clear, meaning they have clearing arrangements in place and  they 
clear  some  trades  voluntarily.  These  findings  are  confirmed  by  ESMA’s  latest  report  which 
noted a high level of operational readiness of PSAs to clear33.   

ESMA’s analysis indicates that around a third of PSAs clearing trades started to clear in the 
past  year.  There  are  however  some  differences  between  PSAs  (some  clearing  the  vast 
majority  of  their  trades,  some  very  little  or  none)  and  clearing  activity  seems  to  be 
concentrated (around 70% of the cleared notional is attributable to just 5 PSAs). In terms of 
percentage  cleared,  the  analysis  indicates  that  around  25%  of  notional  (40%  in  trade  count) 
traded  by  PSAs  is  cleared.  However,  while  the  three  largest  PSAs  typically  clear  25%  on 
average but not more than 25%-30% of their trades, medium-sized and small PSAs clear from 
0 to 100% of their trades.   

The  balance  in  clearing  activity  between  Eurex  and  LCH  Ltd  for  PSAs  cleared  swaps,  in 
terms  of  overall  cleared  volume,  is  however  in  the  same  proportion  as  for  the  rest  of  the 
market,  i.e.  that  LCH  Ltd  continues  to  have  a  dominant  market  share.  In  terms  of  clearing 
arrangements, the picture is different though. Looking at PSAs above the EUR 8 billion initial 
margin threshold, the analysis indicates similar percentages in terms of PSAs having at least a 
cleared trade at Eurex (76%) and a cleared trade at LCH Ltd (80%). This would mean that the 
vast  majority  of  the  larger  PSAs,  the  ones  most  likely  affected  by  the  requirement  to  clear, 
have arrangements in place to clear at either CCP. According to ESMA’s calculations, 31 EU 
PSAs would be captured by the clearing obligation under EMIR, as they would be above the 
clearing thresholds34. The vast majority of these PSAs (80%) have cleared at least one trade, 
but  not  necessarily  their  entire  derivatives  portfolio,  and  thus  have  some  clearing 
arrangements in place. The development of the Commission’s strategy on clearing, which will 
be presented later in 2022, aims to improve the attractiveness of clearing in the EU. 

Lastly, it is important to highlight that despite their growing operational readiness, PSAs have 
expressed concerns about there being sufficient capacity to clear all their derivatives subject 
to  the  clearing  obligation.  They  have  indicated  that  increasing  the  clearing  rate  from  the 
current levels might pose challenges in terms of clearing capacity limits caused by a limited 
number of clearing members or their potential clearing limits.  

5.  CONCLUSION 

The  current  central  clearing  exemption  expires  on  18  June  2022.  EMIR  REFIT  allows  the 
Commission to extend this temporary exemption for the last time until 18 June 2023, were it 
to  conclude  that  market  participants  need  additional  time  to  further  develop  and  adopt 
appropriate  technical  solutions,  and  that  the  adverse  effects  of  centrally  clearing  derivative 
contracts on the retirement incomes of pensions remain unchanged.   

The Commission’s analysis shows that liquidity conditions for PSAs continue to improve and 
a variety of models have sprung up to access central clearing or transform collateral. Although 
a single solution to the provision of margin to  CCPs by PSAs in stressed market conditions 
has proved elusive, a range of instruments exists that should allow the pension funds to clear 
efficiently in different market conditions, including under stress. 

33 These findings were presented and discussed during the EC’s expert group meeting on 14 December 2021, and 
participants who intervened confirmed seeing the same trends.  
34  EMIR  Refit  defined  small  financial  counterparties  as  entities  whose  volume  of  activity  in  OTC  derivatives 
markets  as  too  low  to  pose  an  important  systemic  risk.  These  counterparties  are  exempted  from  the  clearing 
obligation, but remain subject to the requirement to exchange collateral to mitigate any systemic risk. See EMIR 
Refit, recital 7 and Article 4(a).  

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In order to fully use the available solutions, EEA pension funds will need to strengthen their 
operational  capacity to  clear and manage liquidity  and collateral.  The analysis submitted by 
ESMA  showed  that  the  number  of  PSAs  clearing  continues  to  increase,  but  the  level  of 
readiness  across  the  sector  varies.  Therefore,  PSAs  and  their  CCP  clearing  members  would 
need additional time to finalise the arrangements necessary to clear all the contracts that are in 
scope. Time is also needed to address liquidity preparedness of PSAs as not all seem to have 
adequate liquidity management. Notably, national competent authorities in the Member States 
with  larger  PSA  markets  have  indicated  that  supervisory  initiatives  have  been  set  up  to 
improve  this  situation35.  Lastly,  the  Commission’s  strategy  on  clearing  will  attract  greater 
activity at EU-based clearing houses, providing PSA’s with greater access to competitive and 
efficient clearing services.  

In  conclusion,  since  2019,  there  has  been  substantial  progress  towards  central  clearing  for 
PSAs,  including  some  PSAs  partially  moving  to  central  clearing  on  a  voluntary  basis. 
Nevertheless,  further  operational  steps  are  needed.  In  particular,  EU  CCPs  should  use  the 
allotted time to further develop their facilitated access and collateral transformation models, to 
increase their attractiveness  to  PSAs, in  particular smaller ones, which seem  currently to  be 
more  reluctant  to  clear.  At  the  same  time,  pension  funds  should  ensure  that  they  possess 
sufficient  organisational  competences  and  capacities  to  handle  clearing  of  their  derivative 
portfolios. For these reasons, the Commission will prolong the clearing exemption for PSAs 
for  a  final  year.  From  19  June  2023,  Pension Scheme  Arrangements  will  be  required  under 
EMIR to clear. 

35 The clearing obligation for pension scheme arrangements, European Securities and Markets Authority, 25 
January 2022, ESMA70-451-110, paragraph 26. 

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