INTERNATIONAL: IOSCO Publishes Peer Review of Regulation of Money Market Funds

Thursday September 10 2015

On 3rd September 2015, the International Organsiation of Securities Commissions (IOSCO) published a final report on the Peer Review of Money Market Funds. The report sets out the findings of the review by the International Organisation of Securities Commissions (IOSCO) of the progress in adopting legislation, regulation and other policies in relation to money market funds (MMFs) in the following areas:

• Scope of the regulatory reform – explicit definition of MMFs in regulation and appropriate inclusion of other investment products presenting features and investment objectives similar to MMFs;
• Limitations to the types of assets of, and risks taken by, MMFs;
• Valuation practices of MMFs – addressing specific valuation issues for MMFs and their portfolios;
• Liquidity management for MMFs – aimed at ensuring MMFs maintain adequate liquidity resources in normal business conditions as well as in stressed market conditions;
• MMFs that offer a stable net asset value (NAV) – addressing the risks and issues which may affect the stability of MMFs that offer a stable NAV;
• Use of ratings by the MMF industry;
• Disclosure to investors; and
• Repos – MMF practices in relation to repurchase agreement transactions.

The Review was a Level 1 or ‘Adoption Monitoring Review’. It measured implementation progress only and did not assess the consistency of implementation measures against IOSCO’s Policy Recommendations for Money Market Funds (2012).

Thirty-one jurisdictions participated in the Review, of which 24 were Financial Stability Board (FSB) members.

Key findings

Overall, the Review found that as at the Reporting Date, participating jurisdictions has made progress in introducing implementation measures across the eight Reform Areas.

Implementation progress varied between jurisdictions and Reform Areas.

For the Largest Jurisdictions, only the U.S. reported having final implementation measures in all Reform Areas, with China and the EU members still in the process of developing and finalising relevant reforms.

For jurisdictions with smaller MMF markets, implementation progress was less advanced, with only four other participating jurisdictions (Brazil, India, Italy and Thailand, the first 3 being FSB members) reported having final implementation measures in all Reform Areas.

The Reviews main findings by Reform Area are concerning the following:

• The definition of MMFs – almost all participating jurisdictions reported having introduced an express definition under their Collective Investment Scheme (CIS) regulation.
• Limitations to asset types and risks – implementation was generally well progressed with a substantial majority of jurisdictions reporting implementation of all measures in this reform area.
• Valuation – implementation is generally well progressed. However, a number of jurisdictions reported having no requirements for MMFs to comply with the general principle of fair value and/or use the amortised cost method only in limited circumstances.
• Liquidity management – implementation progress was less advanced and uneven, perhaps reflecting the pre-crisis, most jurisdictions did not have requirements in this area.
• MMFS that offer a stable NAV – further work is needed.
• Use of ratings – there had been some progress in implementation, although a number of participating jurisdictions reported they continue to have requirements restricting their MMFs to invest in instruments with specified external credit ratings.
• Disclosure to investors – implementation was generally well progressed on valuation practices and procedures to deal with significant market stress.
• Repos – implementation was well progressed, with the few jurisdictions that have not progressed any reforms generally reporting the use of repos by MMFs in their jurisdiction as very low.

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