IMMFA: Disappointment in the ECON vote on amendments to the Money Market Fund Regulation

Published 

Statement by the Institutional Money Market Funds Association

This morning the Economic and Monetary Affairs Committee (ECON) of the European Parliament passed a set of proposed amendments to the Money Market Fund Regulation (MMFR) which had originally been put forward by the European Commission in September 2013.

The money market fund industry in Europe has approximately €1 trillion assets under management. If implemented, the changes suggested by the European Parliament would have wide-ranging and long-term ramifications for both the constant net asset value (CNAV) and variable net asset value (VNAV) sectors of the money market fund market.

A great deal of effort has been expended over the last few years by the many different parties involved with money market funds – such as the investors, the fund managers, the fund administrators – to raise awareness of the significance of money market funds in the broader economy and the key operational features of the funds. Very many everyday businesses value money market funds as a tool; to help them analyse and diversify their credit risk and to manage their cash safely and efficiently.

Bearing this combined effort in mind, it is regrettable that the ECON Committee has decided upon a set of proposals which would impinge on the usefulness of many of the money market funds products and as a result would negatively impact the funding supply which money market funds inject into the short term capital market. This in turn has implications for the many businesses and banks which fund themselves in this market.

It is a positive development that the measures passed this morning recognized that the capital buffer originally suggested by the European Commission was not a viable proposal for an investment product. It is also worth noting that many of the good market practices which IMMFA funds already adopt voluntarily under the IMMFA Code of Practice, such as credit diversification, prescribed levels of liquidity and a high level of transparency, have been incorporated into the future regulation of money market funds in Europe.

However the options presented to the CNAV industry are disappointing. The Retail CNAV and EU Public Debt CNAV options are limited in scope, and certainly under current market condition together account for less than 10% of the CNAV AUM. The limitations of these 2 options were clearly identified in the impact assessment commissioned by the European Parliamentary Research Service (EPRS), the findings of which were shared with the European Parliament last week.

The proposed LVNAV option could operate as a substitute CNAV product providing the funds invest only in extremely short duration debt instruments (<90 days). However under a so-called ‘sunset clause’ the authorisation of these funds would lapse 5 years after the Regulation comes into force. Given the time and effort required, fund managers are unlikely to offer, and investors are unlikely to approve and invest in a product which will go away 5 years after it is created. Furthermore, the pressure to make these funds ultra-short further exacerbates the problem in the short term debt markets whereby investors are encouraged to invest over an ever shorter time horizon at the same time that debt issuers are under regulatory pressure to issue for a longer time-frame.

The agreement by the Parliament is effectively stage 2 of a 4-stage process. The proposed text from the ECON Committee will now be subject to plenary ratification by the full European Parliament – this is expected to take place sometime in April. The next phase requires the Council of Ministers, made up of senior representatives from each of the 28 Member States, to agree their version of how the future regulation of money market funds should be effected. Once each of these 3 bodies (the EC, the EP and the CoM) has their own version of the MMFR, the fourth and final stage, the Trilogue, takes place.

The Council of Ministers still has the opportunity to express their vision of how money market funds regulation should be implemented, and this view along with those of the European Parliament and the European Commission will be considered in the Trilogue process.

IMMFA remains committed to working with all parties involved in the regulatory debate and hopes that in the long run a pragmatic approach will prevail.

 

About IMMFA

IMMFA is the trade association which represents constant NAV money market funds. It was established on 14 June 2000, and currently has 20 members who operate funds and a number of associate members. Funds under management exceeded €550 billion as at mid February 2015 and make up approximately 50% of MMF in Europe

Most recent episodes

£15 Billion Stimulus Pumped into UK Economy to Ward Off Recession Fears

Welcome to the latest edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 7th June...

04:44

Advantage Treasury

Eleanor Hill is joined in the virtual TreasuryCast studio by Nicolas Cailly and Philippe Penichou (Societe Generale) to look at treasury trend predictions for the remainder of 2022, with a particular focus on virtual accounts. In this deep dive into current and future treasury priorities, our guests...

24:22

40th Annual New York Cash Exchange: What Can Treasurers Expect?

Ahead of the 40th annual New York Cash Exchange, two of TMANY's distinguished board members, David Miller and Timothy T. Hesler, CTP, provide TMI CEO, Robin Page, with a quickfire rundown of what attendees can expect from this year’s conference. Our guests share their aspirations for the event, explain...

09:58

Expectation-Beating Inflation Prints Ratchet Up Pressure on Monetary Policy

Welcome to the third edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 9th May...

04:48

Making the Sustainable Transition: A Roadmap to ESG in Treasury

Over the last 18 months, Societe Generale has experienced a steady increase in requests from their corporate clients to integrate ESG features in treasury management.  Louis-David Rouyer, Philippe Pougeard, and Emmanuelle Petelle (Societe Generale) provide TMI's Eleanor Hill with a whistlestop run...

22:24

Lift Off for Fed Rate Rises

Welcome to the latest edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 5th of...

04:58

Treasury in 2022 and Beyond

Industry experts Bob Stark (Kyriba) and Sebastian di Paola (PwC) join TMI's Editor, Eleanor Hill, to explore the very latest treasury trends - and to discuss how smart treasurers can get ahead of th...

43:21

How BearingPoint Harnessed Data-Driven Forecasting with CashAnalytics and SAP

Listen back to our recent forecasting masterclass, where Group Treasurer Eveline Stam, and Conor Deegan (CashAnalytics) provided TMI's Eleanor Hill with a comprehensive overview of how consultancy firm BearingPoint achieved company-wide cash forecasting nirvana by combining specialist solutions from...

37:14

The 3 T’s of The Future: Tech, Treasury, and Transformation

Over the past two years, an increasingly dynamic environment has not only accelerated technology development – from quantum computing to blockchain technology, and even the metaverse – but also technology adoption, bridging colleagues and breaking down silos in a remote work world. In this podcast,...

44:02

Monetary Policy Continues to Drive Markets as Ukraine Invasion Weighs on March Meetings

Welcome to the second edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 3rd of...

05:25