The temporary exemption from clearing for transactions objectively measurable as reducing investment risks of the pension scheme expires on 16 August 2018 and there is no power under EMIR as it stands to extend it, although, smaller pension schemes (broadly, those with uncleared derivatives notional below EUR 8 billion) are not due to be phased-in to mandatory clearing until mid-2019. EMIR is currently being reviewed (“EMIR Refit”) and it is virtually certain that it will be amended to extend the temporary exemption for all pension schemes, although not before the current exemption being relied upon by larger pension schemes expires in August.

To address this timing gap, last week ESMA published a statement saying it expects competent authorities (such as the FCA in the UK) to not prioritise their supervisory actions towards entities that are expected to be exempted again in a relatively short period of time and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate manner. This was then corroborated by a statement from the FCA confirming it does not require pension schemes and their counterparties to start putting processes in place to clear derivatives for which they are currently exempt from clearing under EMIR during such timing gap, subject to any further statements that may be issued by ESMA or the FCA.

Under the proposed EMIR Refit, the expectation is that the pension scheme clearing exemption will be extended for a further two to three years with a possible further extension for one to two years.