IPE: Pension funds win reprieve from European derivatives regulation

25 May 2011

Pension funds have won a reprieve from the derivatives regulation passing through Brussels, at least for a period of three years, with a further extension possible.

This follows acceptance of a relevant amendment that cleared through the European Parliament's Economic and Monetary Affairs Committee (ECON) yesterday. The draft regulation – on over-the-counter derivatives, central clearing parties and trade repositories – aims to bring greater safety, transparency and stability to the market, which was valued at around €425trn in 2009.

German MEP, Werner Langen, described the report, which he drafted, as "strict" regarding exemptions to the clearing obligation for trade in derivatives. The relevant amended article in the current version of the regulation, which will be subject to clearance by Parliament in a plenary session in early July, states that derivative contracts that are "objectively measurable" as reducing risks directly related to the financial solvency of pension scheme investments under IORP, or a scheme where the law of the member state recognises the scheme for retirement planning, "shall be excluded from the clearing obligation".

The exclusion continues for three years after the entry into force of this regulation. However, the wording continues that if after the three years an "undue burden remains disproportionate", the Commission is empowered to extend the derogation.

Following the plenary vote, the package will move to the Council of the EU. Swift agreement by finance ministers, which is by no means certain, could see the new standards "established by the autumn of this year", according to Langen. Sibylle Reichert, the AEIP's Brussels representative, told IPE: "This is an important result for pension funds".

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