Money Market Funds Regulation: Fifth Compromise Proposal Published
Council of the EU publishes further compromise proposals for regulating money market funds
On 10 May 2016, the Dutch presidency of the
Council of the EU published a fifth compromise text on the proposed
Regulation on Money Market Funds (MMF Regulation). This latest compromise
proposal sets out a number of amendments to the fourth proposal, the more
material 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 market
instruments
(b) Eligible securitisations and asset backed
commercial paper
The extension of the transitional period from
one to two years following the entry into force of the MMF Regulation, as
recommended in the fourth compromise proposal, has been retained. This means
that existing CNAV MMFs will have two years to convert to either CNAV MMFs that
invest in public debt instruments, LVNAV MMFs or VNAV MMFs.
Contributed by
Niall Crowley