On 30 June 2017, Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (the “MMF Regulation/Regulation”) was promulgated in the EU Official Journal. The European Parliament approved the text on 5 April 2017, following an agreement between Council and Parliament representatives on 7 December 2016.
The MMF Regulation is based on the existing legal framework laid down by Directive 2009/65/EC and Directive 2011/61/EU and fixes unified rules for money market funds1 (MMFs) established, managed or marketed in the European Union regarding their investment policy obligations, risk management, evaluation of assets, transparency and reporting requirements. The ambition of the Regulation is to ensure the smooth operation of the short-term financing market and to improve the ability of MMFs to weather stressed market conditions and their internal risk management, transparency and reporting.
The MMF Regulation applies to:
- collective investment undertakings that are established, managed, or marketed in the European Union;
- undertakings for collective investment in transferable securities (“UCITS”);
- alternative investment funds (“AIF”) under the Directive 2011/61/EU;
- collective investment undertakings investing in short-term assets;
- collective investment undertakings that have distinct or cumulative objectives that offer returns in line with money market rates or that preserve the value of the investment.
Main points of interest:
The MMF Regulation introduces common standards to increase the liquidity of MMFs as well as to ensure the stability of their structure:
- uniform rules are introduced to ensure a minimum level of daily and weekly liquid assets able to face investors’ redemption requests;
- a standardized policy is established to permit the fund manager to gain a better understanding of its investor base;
- common rules are also introduced to guarantee that MMFs invest in high quality and well diversified assets of good credit quality;
- the stability of the MMF is ensured through the creation of clear and harmonized valuation rules for the assets in which the MMFs invest in;
- the common rule on rating ensures that fund managers and investors shall stop relying on external credit ratings that could be detrimental to the functioning of the money market when downgrades occur;
- the abovementioned measures are accompanied by increased transparency requirements in order to ensure that the investor correctly understands the risk and reward profile of its investment;
- the Regulation relies on the existing authorisation procedures for UCITS under the UCITS Directive. The MMF Regulation introduces a harmonised authorisation procedure for AIF MMFs that mirrors the harmonised authorisation procedure for UCITS;
- managers of MMFs shall continue to be regulated by either the Directive 2014/91/EU or Directive 2011/61/EU but managers and funds falling under the scope of the MMF Regulation shall have to comply with this additional layer of specific MMF product rules applicable all over the European Union.
The MMF Regulation will apply from 21 July 2018, with the exception of Articles 11(4), 15(7), 22 and 37(4) which apply from 20 July 2017.
Read the full text of the regulation here.
1 Money Market Funds are an important source of short-term financing for financial institutions, corporates and governments. MMFs offer a short-term cash management tool that provides a high degree of liquidity, diversification, stability of value combined with a market-based yield. During the financial crisis, their liquidity and stability were challenged, which prompted the European Commission to propose a regulation on MMFs in 2013.