Addressing industry concerns around the 30 June 2022 expiry of the transitional reliefs from clearing and margining for intragroup transactions with counterparties in non-equivalent third countries:
- the ESAs have jointly published a final report and draft RTS proposing amendments to the margin RTS extending the temporary intragroup exemption to 30 June 2025; and
- ESMA has similarly published a final report and draft RTS proposing amendments to the clearing RTS extending the temporary intragroup exemption to 30 June 2025.
Whilst the legislative process will take some time, the ESAs have jointly published a public statement providing for regulatory forbearance, giving market participants much needed reassurance that they may continue to rely on these derogations during the period from 30 June 2022 until the extensions are effective.
The proposed three-year extension provides a welcome period of certainty, during which the Commission can continue to consider the equivalence of third country rulesets. However, implementing an extensive framework of equivalence decisions in this context has proved elusive to date.
As it stands, equivalence decisions relating to margin are limited to certain aspects of the margining and other risk mitigation techniques for uncleared derivatives in respect of Australia, Brazil, Canada, Hong Kong, Japan, Singapore, and the US CFTC and prudential regulators. As yet, no equivalence decision has been granted for the purposes of the clearing obligation.
It is, therefore, helpful that the extended reliefs will continue through the next scheduled review of EMIR, which is due to be completed by 18 June 2024. This will provide the Commission with the opportunity to review, and potentially revise, the EMIR equivalence framework. In today’s publications, the ESAs acknowledge this opportunity to address challenges identified in this context. Indeed, ESMA has already made a number of suggestions for changes to the equivalence framework in its recent response to the Commission’s consultation on a targeted review of the EU central clearing framework.
Under UK EMIR, as onshored, equivalent temporary intragroup exemptions from clearing and margining apply until end-2023, with the Treasury having power to further extend these exemptions.
Pension scheme exemption from clearing
Also on the topic of temporary derogations, the exemption from clearing for EEA pension schemes is due to expire imminently on 18 June 2022.
On 9 June 2022, the Commission adopted a delegated act extending the clearing exemption for a further twelve months. This is the final extension available to the Commission under EMIR and will enter into force the day following its publication in the Official Journal. Consistent with the recommendations in ESMA’s February 2022 report, the Commission considers that pension schemes should be able to clear, and confirms that schemes will be subject to the clearing obligation under EMIR, from 19 June 2023.
Under UK EMIR, as onshored, transactions between a UK financial counterparty and a UK pension scheme (or an EU pension scheme) are exempted from the clearing obligation until 18 June 2023, with the Treasury having power to further extend this period.
For further information, please contact:
Pauline Ashall, Partner, Linklaters