On 10 May 2016, the Dutch presidency of theCouncil of the EU published a fifth compromise text on the proposedRegulation on Money Market Funds (MMF Regulation). This latest compromiseproposal sets out a number of amendments to the fourth proposal, the morematerial of which are set out below:

• Constant Net Asset Value (CNAV) Money Market Funds (MMFs) will only be permitted to operate in the EU as either a CNAV MMF that invests in public debt instruments, or as a Low Volatility Net Asset Value MMF (LVNAV MMF).
• UCITS MMFs will be authorised under both the UCITS Directive and the MMF Regulation.
• AIF MMFs will be authorised under the MMF Regulation and may also be authorised under domestic investment fund legislation.
• MMFs will be permitted to hold ancillary liquid assets, such as cash, current accounts or demand deposit accounts.
• MMFs must establish a credit quality assessment procedure to perform credit quality assessments of both money market instruments and their issuers taking into account their relative risk of default. A manager of a MMF should report to the board at least annually on the MMF’s credit risk profile following an analysis of the results of the MMF’s internal credit quality assessments.
• A CNAV MMF, a LVNAV MMF and a Variable Net Asset Value (VNAV) MMF may all take the form of a short-term MMF. Only a VNAV MMF may take the form of a standard MMF.
• Subject to certain conditions a MMF may also invest in:

(a) High quality money marketinstruments

(b) Eligible securitisations and asset backedcommercial paper

The extension of the transitional period fromone to two years following the entry into force of the MMF Regulation, asrecommended in the fourth compromise proposal, has been retained. This meansthat existing CNAV MMFs will have two years to convert to either CNAV MMFs thatinvest in public debt instruments, LVNAV MMFs or VNAV MMFs.

Contributed byNiall Crowley