New Regulations Extend Pension Fund Clearing Exemption Indefinitely

In a recent development, the UK Treasury has introduced the Pension Fund Clearing Obligation Exemption (Amendment) Regulations 2025, which officially came into force on June 11, 2025. This legislative tweak, backed by the Financial Services and Markets Act 2023, marks a significant shift in the regulatory landscape for pension funds dealing with derivatives.

What’s Changed?

The core of the amendment revolves around Article 89 of Regulation (EU) 648/2012, commonly referred to as UK EMIR. Previously, pension funds enjoyed a temporary exemption from the clearing obligation for certain derivative contracts. This exemption was set to expire on June 18, 2025. However, the latest amendment has removed this deadline, effectively making the exemption permanent.

Why Does It Matter?

Clearing obligations require parties trading over-the-counter (OTC) derivatives to clear these trades through central counterparties, which can be a costly and complex process. By lifting the time restriction on the exemption, pension funds can continue to engage in derivative transactions without the burden of mandatory clearing. This move aims to simplify financial operations for pension funds, potentially leading to cost savings and increased investment flexibility.

Consultation and Approval

Before this regulation was enacted, the Treasury engaged in consultations with key financial bodies, including the Financial Conduct Authority, the Prudential Regulation Authority, and the Bank of England. The amendment was also scrutinized and approved by both Houses of Parliament, ensuring a comprehensive legislative process.

Impact Assessment

Interestingly, the Treasury has not produced a full impact assessment for this regulation, suggesting that the changes are not expected to significantly affect the private, voluntary, or public sectors. A minimal impact assessment is available for those interested, detailing the expected negligible effects.

Conclusion

The indefinite extension of the pension fund clearing exemption reflects the government's intention to streamline financial regulations and reduce operational burdens on pension funds. This move is likely to be welcomed by industry stakeholders who have long advocated for regulatory relief. For further details, the explanatory memorandum and related documents are accessible online.