EUROPEAN UNION: Council Agrees Negotiating Stance on Draft Regulation on Money Market Funds

Monday June 20 2016

The Permanent Representatives Committee (Coreper) has agreed, on behalf of the Council, a negotiating stance on a draft regulation on money market funds, aimed at making such products more robust.

The draft regulation is intended to ensure the smooth operation of the short-term funding market, maintaining the essential role that money market funds play in the financing of the economy.

The Council will confirm Coreper’s agreement at a meeting on 17 June 2016, and will ask the presidency to start talks with the European Parliament. The Parliament’s ECON committee approved its negotiating stance in March 2015.

With assets under management of around €1 trillion, MMFs are mainly used to invest excess cash within short timeframes. They represent an important tool for investors because they offer the possibility to diversify their excess cash holdings, whilst maintaining a high level of liquidity.

However, the financial crisis of 2007-08 showed that MMFs can be vulnerable to shocks and may even spread or amplify risks throughout the financial system. Investors are likely to redeem investments as soon as they perceive a risk, which can force funds to sell assets rapidly in order to meet redemption requests.

The draft regulation lays down rules for MMFs, in particular the composition of their portfolios and the valuation of their assets, to ensure the stability of their structure and to guarantee that they invest in well-diversified assets of good credit quality.

For further information on the Regulation for Money Market Funds, please follow the link below to our previous article of 01 April 2015.

Funds Axis – Regulation on MMF – 01 April 2015

Please click on the above link for further information on the draft regulation.