New legal obligations for trustees engaging in derivative contracts
19 June 2014: Trustees of occupational pension schemes and trust retirement annuity contracts should be aware of various obligations which arise for counterparties to derivative contracts, under a European regulation known as EMIR.
The obligations include:
- ensuring that derivative contracts are reported to a trade repository
- risk mitigation requirements for over-the-counter derivatives which are not centrally cleared
- mandatory clearing of certain over-the-counter derivatives, unless subject to the transitional exemptions in Article 89 of EMIR.
The reporting obligations apply as from 12 February 2014 and will affect derivative contracts which were entered into since, or were outstanding on, 16 August 2012.
Trustees should familiarise themselves with EMIR and liaise with their investment managers as necessary.
The Central Bank is expected to be appointed as the competent authority under EMIR and has prepared FAQs on EMIR, which can be found here.
EMIR is Regulation (EU) No 648/2012 of 4 July 2013 on OTC derivatives, central counterparties and trade repositories.
EMIR defines an OTC derivative contract as a derivative contract the execution of which does not take place on a regulated market (as defined).