The EU Money Market Fund Regulation was been signed off yesterday in a form that is much more by the industry than the original proposal.
The Council of Ministers yesterday signed off the regulation in a meeting of EU Ambassadors (COREPER) and this morning it was confirmed by the European Parliament’s ECON Committee. The orginal proposal from the European Commission was put forwad in 2013.
European asset management trade body EFAMA welcomed the outcome as more workable for its members managing money market fund (MMFs), of both variable and constant net asset value funds (VNAV and CNAV respectively).
Peter De Proft, director general of EFAMA, said: “From the outset, we have indicated that a proportionate and balanced Regulation which ensures the viability of both CNAV and VNAV MMFs can support alternative sources of financing to the real economy, a key focus of the European Commission’s flagship initiative on a Capital Markets Union.
“In terms of CNAV MMFs, we welcome the creation of the LVNAV product which has the possibility of offering investors a real alternative to European CNAV Prime MMFs.
"Equally important is the retention of a workable government CNAV regime in different currencies. For the VNAV industry, a number of serious operational challenges have been minimised. However, the MMFR is by no means a panacea for either the industry or investors in MMFs.”
While the final regulations were welcomed concerns remain around liquidity calculations. EFAMA describes the thresholds set in the final political agreement as “arbitrary” and the lack of a principles-based approach to calculations mean they may not be workable in all market conditions.
EFAMA also criticised the barring of MMFs from being allowed to operate as fund-of-funds, which is used by VNAV managers to achieve diversification. In addition, it questioned how the exemption from the 10% diversification limit of assets in deposits would work as well as whether it would be practical for smaller managers to apply know-your-customer requirements.
De Proft added: “One cannot ignore the number of question marks on the potential consequences of different parts of the agreement. It remains to be seen whether smaller players will be able to continue operating, given the more elaborate compliance and disclosure requirements, combined with low business margins.”