The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, today launches a consultation on potential reforms of the EU Money Market Funds Regulation (MMFR). ESMA aims to review the stress experienced by MMFs during the March 2020 crisis and assess the roles played by markets, investors and regulation, and proposes potential reforms.
Proposed MMF reforms
ESMA sets out four types of potential reforms for MMFs:
- Reforms targeting the liability side of MMFs – such as decoupling regulatory thresholds from suspensions/gates to limit liquidity stress, and to require MMF managers to use liquidity management tools such as swing pricing;
- Reforms targeting the asset side of MMFs by e.g. reviewing requirements around liquidity buffers and their use;
- Reforms targeting both the liability and asset side of MMFs by reviewing the status of certain types of MMFs such as stable Net Asset Value (NAV) MMFs and Low Volatility Net Asset Value (LVNAV); and
- Reforms that are external to MMFs themselves by assessing whether the role of sponsor support should be modified. In addition, ESMA is also gathering feedback from stakeholders on other potential changes, particularly linked to ratings, disclosure and stress testing.
Steven Maijoor, Chair, said:
“The COVID-19 crisis has been challenging for MMFs. A number of EU MMFs faced significant liquidity issues during March 2020, a period of acute stress, with large redemptions from investors and a severe deterioration in the liquidity of money market instruments.
“ESMA is seeking input from stakeholders on potential reforms of the EU MMF regulatory framework, in light of the lessons learnt from the difficulties faced by MMFs last March, with the aim of providing feedback to the Commission ahead of the scheduled legislative review.”
Responses to this consultations are welcome by 30 June 2021. ESMA will consider the feedback it received to this consultation in Q2 2021 and expects to publish its opinion on the review of the MMF Regulation in the second half of 2021.
Article 46 of the MMF Regulation (MMFR), requires the EC to review, following consultations with ESMA, the adequacy of the MMFR from a prudential and economic point of view by 21 July 2022.
Source: ESMA consults on the framework for EU Money Market Funds