PensionsEurope has called for certain EU banking rules to be reformed, warning they are detrimental to pension funds and their service providers.

In its position paper on the European Commission’s Banking Competitiveness Report, PensionsEurope said changes to certain regulations were needed to facilitate the interaction between pension funds and European banks.

The association highlighted that banks play an important role for pension funds though cash management, custody, foreign exchange, derivatives, repo and collateral services, among other things.

It therefore highlighted several areas where banking prudential rules could have unintended consequences for pension funds, their members, and beneficiaries.

A primary concern related to calibrations of market risk, particularly the credit valuation adjustment (CVA) and counterparty credit risk (CCR).

PensionsEurope warned that these metrics led to capital requirements that were not proportionate when transacting with highly creditworthy and transparent pension funds.

As EU pension funds are not able to be leveraged under the IORP II Directive, and are fully funded and have no residual debt, the association argued they posed little CCR, and were highly robust and creditworthy.

It therefore called for pension funds’ risk weightings to be set at an equal level to those used for investment-grade issuers and publicly traded securities.

PensionsEurope urged the commission to remove the need for an external credit rating for European pension funds and deem them as highly creditworthy by banks.

The association also highlighted the access to repo markets during times of market stress as an important issue, noting that this can be particularly important for pension funds with material derivatives exposures.

These pension funds need to be able to execute repo transactions with banks to transform their government bonds into cash to meet variation margin calls for cleared transactions, PensionsEurope explained.

It therefore urged to commission to create a central bank liquidity backstop for EU central clearing parties and banks to keep the repo market open, to ensure large pension funds can access these markets even during times of market stress.

Other actions recommended by the association included the consideration of any unintended secondary effects on the availability, mobility and acceptance of government bonds, and the cumulative impact of international differences on banking services/regulations that apply to long-term institutional investors, such as pension funds, and appropriate actions.

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