(1)

Central counterparties (CCPs) interpose themselves between counterparties to the contracts traded on one or more financial markets. The credit risk of those counterparties is mitigated through the posting of collateral which is calculated to cover any potential losses upon a default. CCPs accept only highly liquid assets, generally cash, as collateral to meet variation margin (VM) calls in order to allow for a rapid liquidation in the event of a default.

(2)

Pension Scheme Arrangements (PSAs) in many Member States are active participants in the OTC derivatives markets. However, PSAs generally minimise their cash positions, instead holding higher yielding investments such as securities in order to ensure strong returns for pensioners. 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. Hence, requiring such entities to clear OTC derivative contracts centrally would lead to divesting a significant proportion of their assets for cash in order for them to meet the ongoing margin requirements of CCPs.

(3)

Article 89(1) of Regulation (EU) No 648/2012 therefore provides that, for three years after the entry into force of that Regulation, the clearing obligation set out in Article 4 of Regulation (EU) No 648/2012 does not apply to OTC derivative contracts that are objectively measurable as reducing investment risks directly relating to the financial solvency of PSAs. The transitional period also applies to entities established for the purpose of providing compensation to members of PSAs in case of a default.

(4)

Article 85(2) of Regulation (EU) No 648/2012 requires the Commission to prepare a report assessing whether necessary efforts have been made by CCPs to develop appropriate technical solutions for the transfer of non-cash collateral as VM by PSAs. In order to carry out the assessment, the Commission ordered a baseline study on solutions for the posting of non-cash collateral to central counterparties by pension scheme arrangements, as well as on the impact of removing the exemption in the absence of a solution in terms of the reduction in retirement income for the pensioner beneficiaries of the affected PSAs. On this basis, the Commission adopted its report (2) on 3 February 2015.

(5)

In accordance with the findings of its report, the Commission considered that the necessary effort to develop appropriate technical solutions has not been made by CCPs at this point in time and that the adverse effect of centrally clearing OTC derivative contracts on the retirement benefits of future pensioners remained unchanged. Consequently, Commission Delegated Regulation (EU) 2015/1515 (3) extending the three-year transitional period referred to in Article 89(1) of Regulation (EU) No 648/2012 by two additional years was adopted.

(6)

Since then, the Commission has run a public consultation, which closed in August 2015, to prepare a report on the implementation of Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories, in accordance with Article 85(1) of that Regulation. The Commission has also consulted the public in a Call for Evidence on the EU regulatory framework for financial services. The outcome of the public consultation on Regulation (EU) No 648/2012 and the submissions to the Call for Evidence have confirmed that the necessary effort to develop appropriate technical solutions has not been made by CCPs at this point in time and that the adverse effect of centrally clearing OTC derivative contracts on the retirement benefits of future pensioners remains unchanged, in line with the Commission Report.

(7)

The three-year transitional period referred to in Article 89(1) of Regulation (EU) No 648/2012 should therefore be further extended.

(8)

This Regulation should enter into force as soon as possible to allow the extension of the existing transitional periods to occur prior to or as soon after expiry as possible. A later entry into force could lead to legal uncertainty for pension scheme arrangements as to whether they need to begin preparing for upcoming clearing obligations,