Regulatory

On 22 May 2024, the European Commission published the above targeted consultation which included sections on MMFs and the short term funding markets. The consultation identified a number of key vulnerabilities in the NBFI sector as a whole, including liquidity mismatch, excessive leverage and interconnectedness, all of which we argued in our response had, in the case of MMFs, been mitigated by the provisions of MMFR. IMMFA also provided views on how to improve the overall functionality and efficiency of the short term funding markets and whether access could/should be widened to smaller and/or unrated issuers.

On 17 April 2024, the Financial Stability Board (FSB) published a consultation report on liquidity preparedness for margin and collateral calls. IMMFA responded suggesting that it was an opportune moment to consider the potential positive impact of facilitating the use of MMFs as margin collateral. Facilitating their use would reduce procyclical pressures at times of stress and in our view could contribute to overall stability in line with the FSB’s goals.

On 6 December 2023, the FCA published a consultation on proposals to enhance the resilience of MMFs. The proposals reflected the UK’s support of the Financial Stability Board’s ongoing work to address MMF vulnerabilities.

IMMFA responded welcoming the FCA’s general approach to resilience and the focus on liquidity as the key measure of this. We supported a number of proposals, most notably delinking. We were also positive on the FCA’s decision to retain the LVNAV structure substantially in its current form alongside measures to enhance operational resilience. However, we felt that the increased liquidity requirements, in particular the 50% WLA, were overly conservative given the positive impact which delinking will have in making buffers more usable. We emphasised the resilience demonstrated by MMFs during the various stress events and argued that 50% was not justified.

In conjunction with the UK Authorities’ consultation paper on ‘Updating the regime for MMFs’ (published in December 2023), HMT published a Policy Note and near final version of a Draft Statutory Instrument (SI). The SI is part of HMT’s Smarter Regulatory Framework for financial services and will replace UK MMFR which derived from EU MMFR which in turn was retained following the UK’s departure from the EU. Although substantially similar to UK MMFR, the draft SI contained a number of important changes. IMMFA commented on the draft SI making a number of points predicated on the importance of MMFs to the UK financial sector. In particular, we expressed concerns over proximity of the expiry of the Temporary Marketing Permissions Regime (TMPR) under which UCITS MMFs typically transition in order to continue marketing into the UK. The TMPR is due to end on 31 December 2025. This makes the window for determination of equivalence for any EU domiciled MMFs very narrow and creates cliff edge risk for IMMFA MMFs given they are both UCITS and for the most part, EU domiciled. We also emphasised the importance of an outcomes-based assessment of equivalence and sought more clarity on both of these points.

On 31 January 2023, ESMA launched a consultation paper reviewing the guidelines for MMF stress testing.

The consultation proposed amending the methodology used to measure the impact of stress scenarios. ESMA proposed updates to the so-called ‘liquidity scenario’ which aims to account for the interaction between liquidity and redemption pressure. This entails the introduction of a ‘price impact factor’ as a measure of the discount likely when selling assets in a stressed environment. ESMA suggested two options, one which reflects volume sold, and the other the ‘footprint’ of any holding within a given market segment. Both options rely on data relating to the size and composition of underlying markets such as CP and CD issuance. ESMA also proposed to use the outflow data collected to project the macroprudential impact of stress in the MMF sector. Our response emphasised concerns over reliance on underlying short term funding market data (not MMF data) which can lack transparency and accuracy due to market fragmentation and variations in reporting. We urged ESMA to share any whole-market data which they are gathering with industry participants in the interests of improving transparency. We also emphasised the complexity involved in measuring liquidity due to other market factors.

On 23 May 2022, the FCA published Discussion Paper DP22/1 on the Resilience of Money Market Funds jointly with the Bank of England and with the endorsement of the Treasury. The paper built on the work undertaken by the Financial Stability Board (FSB) in their Holistic Review of March Market Turmoil (November 2020) and the possible policy proposals to enhance MMF resilience which the FSB published in their Final Report of October 2021. The paper assessed vulnerabilities in MMFs and included possible policy changes intended to address these. IMMFA responded providing industry views on the proposed options.

On 12 April, the European Commission launched a consultation targeted at relevant stakeholders and users of money market funds, in particular to investors and managers of MMFs, to understand the impact of existing rules on these stakeholders and users. We expect the feedback received to feed into the Commission’s report to the co-legislators on the adequacy of the Money Market Fund Regulation, set to be published in July 2022.

On 19 November, ESMA launched a consultation paper examining the potential extension of the list of financial instruments eligible for investments by central counterparty clearing houses (CCPs) under European Market Infrastructure Regulation (EMIR) and the possibility of including EU Money Market Funds in the allowed list of investments.

On 26 July, the European Banking Authority (EBA) launched a public consultation on draft regulatory technical standards (RTS) setting out criteria for the identification of shadow banking entities for the purposes of reporting large exposures (Article 394 of Regulation (EU) No 575/2013). The consultation runs until the 26 October. The large exposure framework is a tool for monitoring the loss or disruption which a credit institution could face in the event of the sudden failure of a client or group of clients. Next steps: The deadline for submission of comments is 26 October. A public hearing will take place via conference call on 29 September.

On 30 June the Financial Stability Board (FSB) published its Consultation Report on Policy Proposals to Enhance Money Market Fund Resilience. The report highlights what the FSB perceive to be ‘structural vulnerabilities’ in MMFs ‘stemming from liquidity mismatches, the use of these funds as cash management instruments, as well as from certain fund structures and regulations.’ The FSB set out ‘policy proposals to enhance MMF resilience, including with respect to the appropriate structure of the sector and of underlying short-term funding markets’. The proposals form part of the FSB’s work programme on non-bank financial intermediation and ‘aim to inform jurisdiction-specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by IOSCO’.

On 26 March 2021, ESMA launched its consultation on potential reforms of the EU Money Market Funds Regulation (MMFR). ESMA’s aim is to review the stress experienced by MMFs during the March 2020 crisis and assess the roles played by markets, investors and regulation.

HMT published on 9 November 2020 their consultation response to the Overseas Fund Regime. This document (which can be accessed in the link below) summarises the responses (including IMMFA’s response) to the consultation and explains the government’s approach to legislating for the OFR after considering those views.

HM Treasury consultation on a new ‘Overseas Fund Regime’ (OFR) intended to streamline the regime for the recognition of overseas investment funds (including money market funds) in the UK – March 2020.

The Bank of England launched a call for evidence in November 2019 on ‘Access to Bank of England payments infrastructure and balance sheet for payment firms’.

ESMA Final Report on MMF Reporting - 19 July 2019

ESMA Final Report - Guidelines on Stress Test Scenarios under MMF Regulation - 19 July 2019

Financial Conduct Authority Policy Statement on Money Market Fund Regulation - July 2018

Financial Conduct Authority consults on implementing MMF Regulation January 2018.

European Commission sets out approach to MMF secondary legislation in Better Regulation Roadmap January 2018.

ESMA (European securities regulators) submit advice to European Commission on secondary legislation November 2017.

ESMA Final Report - Guidelines on stress test scenarios under the MMF Regulation - 13 November 2017

ESMA (European securities regulators) consulted on secondary legislation during Summer 2017.

Political agreement reached during trilogues November 2016, text approved by European Parliament and Council in December 2016.

Money Market Fund Reform - European Council position 10th June 2016

ESMA Call for Evidence / Consultation on Asset Segregation and Custody Services under AIFMD and UCITS - 15 July 2016. The deadline for responses is 23 September 2016.

European Commission - Public Consultation on Cross-border Distribution of Funds Across the EU - 2 June 2016

BCBS Consultation on Identification and Measurement of Step-in Risk - December 2015

The EBA has issued guidelines on limits on EU institutions' exposures to shadow banking entities, within which definition they include MMFs.

European Commission- Call for evidence: EU regulatory framework for financial services - 30 September 2015

Money Market Fund Reform - European Commission Proposal - 4th September 2013

ESMA Discussion Paper MIFID II / MiFIR - 22 May 2014

ESMA Final Report - Revision of the Provisions on Diversification of Collateral in ESMA's Guidelines on ETFs and other UCITS Issues - 24 March 2014

ESMA Consultation Paper - Revision of the Provisions on Diversification of Collateral in ESMA’s guidelines on ETFs and other UCITS issues - 20 December 2013

The ESRB Recommendations on Money Market Funds. This was not a formal consultation but we responded to the report.

'Strengthening Oversight and Regulation of Shadow Banking' - November 2012

The consultation issued by IOSCO considering potential reform to money market fund regulation