The European Commission has disregarded objections from the European Supervisory Authorities (ESAs) about the removal of a sovereign concentration limit for pension schemes from rules on non-cleared over-the-counter (OTC) derivatives.
Under final rules adopted earlier this week, pension schemes posting more than €1bn in collateral with a single counterparty will no longer face a requirement to diversify that collateral so that no more than half is in government bonds from a single country or issuer.
This requirement, which pension schemes have fought against, was in draft regulatory technical standards (RTS) the ESAs submitted to the Commission.
In late July, however, the Commission called for these to be amended, including by scrapping the concentration limit provision for pension schemes, as this would make them take on foreign currency risk.
The technical standards are part of the European Market Infrastructure Regulation (EMIR).
A spokeswoman for ESMA, one of the ESAs, explained that, under the inter-institutional process for rule making in the EU, if the Commission decides to ask for amendments to technical standards, the ESAs must produce an opinion, stating their views on the desired amendments.
Several weeks later, the supervisory authorities did so, rejecting the Commission’s position and leaving the pensions industry with some uncertainty as to the final outcome.
After receiving the ESAs’ opinion, the Commission decides on a final text without consulting them further. In this case, it disregarded the authorities’ objections.
Under the final regulation, collateral of more than €1bn posted by a pension scheme with a single counterparty must be “adequately diversified” (the list of eligible collateral includes a mix of member state sovereign and agency debt).
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