Money Market Funds
Regulatory regime revised and reformed
Overview of the MMF regulation
The Money Market Fund Regulation (“the Regulation”) currently pending implementation will apply to all Money Market Funds (“MMF”) whether they are UCITS or Alternative Investment Funds (“AIFs”). According to the Central Bank of Ireland (“CBI”) MMFs made up 23% of net assets of Irish domiciled funds*. MMFs are a very important part of the Irish fund landscape. Ireland has nearly 600 Billion Euro in net assets ahead of Luxembourg and France ** and is the leading location in Europe for establishing and servicing MMFs. The Regulation will be directly applicable in Ireland.
Existing MMFs will have until the 21 January 2019 to comply. Any new MMFs that is created after the 21 July 2018 will have to comply from inception.
The Regulation aims to enhance the liquidity and stability of MMFs and sets out to maintain the essential role that MMFs play in financing the real economy. On 7 December 2016, the Permanent Representatives Committee approved an agreement with the European Parliament on MMFs and the most up to date text of the Regulation itself was published by the EU Council on 26 April 2017. The Regulation lays out rules for MMFs to ensure their diversification and introduces common standards to increase liquidity and prohibits third parties support. A MMF is not permitted to receive external support (direct or indirect support offered by a third party) that is intended for or in effect would result in guaranteeing the liquidity of the MMF or stabilising the NAV per unit or share of the MMF.
*Source: Central Bank of Ireland December 2016
**Source : EFAMA, December 2016
MMFs - next steps
ESMA has now issued its Final Report on technical advice, draft implementing technical standards and guidelines under the Regulation. The European Commission must now endorse the technical advice and technical standards. ESMA is also working on guidelines and IT guidance that will accompany the standards on regulatory reporting. There are still some outstanding issues that require further clarity. The matter of destruction of shares has not been unresolved. ESMA has sought the legal opinion of the European Commission and awaits their response before taking any more action.
ESMA decided to include two different parts in its guidelines on stress testing – the first part follows a principles-based approach and the second part includes common reference stress test scenarios. ESMA plans to do further work on calibrating the parameters of the common reference stress tests and to update its guidelines “in a timely enough manner” to enable managers to include these in their regulatory reports. ESMA has amended its guidelines to make aggregation of stress tests optional. ESMA also simplified the reporting template and deleted a number of fields. ESMA confirmed that the first quarterly reports will need to be sent to national competent authorities by October/November 2019.
The CBI continues to engage with industry on the implementation of the Regulation and Deloitte Asset Management will continue to keep you up to date on the implementation of the Regulation.