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Revised Money Market Funds Regulation
On February 26, the Economic and Monetary Affairs Committee of the European Parliament (ECON) agreed on a revised version of the EU Money Market Fund (MMF) Regulation (the Regulation).
Alternatives for CNAV MMF
The agreed revisions contain key changes to previous versions of the Regulation, particularly regarding the treatment of constant net asset value (CNAV) MMFs, including:
- Removal of the 3% capital buffer for CNAV MMFs
- A new type of Retail CNAV MMF, including charities, non-profit organisations, public authorities and public foundations.
- A new type of Public Debt CNAV MMF which must invest 99.5 % of its assets in public debt instruments and, by 2020, at least 80% of its assets in EU public debt instruments.
- LVNAV - a new type of Low Volatility Net Asset Value Money Market Fund (LVNAV MMF). These MMFs may use amortised cost accounting for assets with a residual maturity of less than 90 days as well as value assets using constant NAV rounded to two decimal places. The Regulation proposes that LVNAVs would be authorised for a term of five years. It also proposes that the Commission should undertake a review of the Regulation after four years, and that this five year licence term should be one of the topics they consider and potentially abolish.
- Mark-to-market or mark-to-model would apply to any asset with a residual maturity exceeding 90 days. The NAV would need to be floated where the constant NAV deviated from the shadow NAV by more than 20 bps.
- The Regulation proposes to apply liquidity fees and redemption gates to LVNAV, Retail CNAV and Public Debt CNAV MMFs.
Several of the amendments mirror some of the new rules for MMFs introduced by the SEC in 2014, particularly the liquidity fees and gates; having a maturity cut-off point below which amortised cost can be used; and the introduction of both retail and government MMFs.A more in-depth review of the US rules and how they compared against previous versions of the European Regulation is available in our article "Money Market Funds" and our webinar.
There are still some stages left before the final version of the Regulation is available:
- ECON will publish the revised draft of the Regulation in the coming days, which will be the text debated by the European Parliament at its April plenary session;
- the Council of Ministers must review and approve the Regulation;
- Finally, trialogue discussions between the Parliament, the Council and the Commission will deliver the approved text of the Regulation.