Brussels, 03/02/2015 (Agence Europe) - On Tuesday 3 February, the European Commission published a report recommending that pension funds be granted a two-year exemption, allowing them to continue their derogation from the obligation to use central counterparties (CCPs) for their over-the-counter derivative products.
According to this report, CCPs need this time - which could start from August 2015 - to find appropriate solutions for pension funds. The report proposes “several options” to facilitate central clearing in the case of pension funds, “but none of them are straightforward and it is sensible to take more time to develop a solution which is proportionate”, the Commissioner for Financial Services, Jonathan Hill, states in a press release.
Under the so-called 'EMIR' regulation of 2012, pension funds of all categories would be obliged to hold cash for central clearing. Given that they do not hold large amounts of cash or highly liquid assets, imposing an obligation of this kind upon them would force them to make in-depth and expensive changes to their economic models, with repercussions on the level of pension income, the European Commission explains.
According to recent estimates, the obligation upon pension funds to clear their over-the-counter derivative portfolios would range from €2.3 billion to €2.9 billion annually, which could cut the income of pensioners in Europe by 3.66% over 20-40 years.
Eventually, pension funds must use central clearing for their operations on derivative products, as is already the case for other financial institutions. (MB)