EUROPEAN UNION: ESMA Consults on Money Market Funds Rules

Thursday May 25 2017

The European Securities and Markets Authority (ESMA) has published a Consultation Paper (CP) on the Money Market Funds Regulation (MMFR). The CP contains proposals on draft technical advice (TA), draft implementing technical standards (ITS), and guidelines under the MMFR. The key proposals relate to asset liquidity and credit quality, the establishment of a reporting template and stress test scenarios.

These represent the detailed rules required for the implementation of the new European Union regulatory framework aimed at ensuring the stability and integrity of money market funds. The key draft proposals under the different policy tools include:

Technical Advice

• the liquidity and credit quality requirements applicable to assets received as part of a reverse repurchase agreement;
• the criteria for the validation of the credit quality assessment methodologies and the criteria for quantification of the credit risk and the relative risk of default of an issuer and of the instrument in which the MMF invests, as well as the criteria to establish qualitative indicators on the issuer of the instrument;

Implementing Technical Standards

• the development of a reporting template containing all the information managers of MMFs are required to send to the competent authority of the MMF, including on the characteristics, portfolio indicators, assets, and liabilities of the MMF. This information will be submitted to national competent authorities (NCAs) and then transmitted to ESMA; and

Guidelines

• guidelines on common reference parameters of the scenarios to be included in the stress tests that managers of MMFs are required to conduct. This takes into account such factors as hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF, movements of interest rates and exchange rates or levels of redemption.

Section 2 of the CP explains the background to our proposals. Sections 3 to 9 gives detailed explanations on the content of the proposals and seeks stakeholders’ input through specific questions.

Annex I sets out the list of questions contained in the paper.

Annex II contains the legislative mandate to develop implementing technical standards and the letter from the European Commission dated 20 January 2017 asking ESMA to provide technical advice.

Annex III sets out the cost-benefit analysis related to the draft technical advice, implementing technical standards and guidelines.

Annex IV contains the full text of the draft technical advice, implementing technical standards and guidelines.

Stakeholders have been invited to provide their feedback on these proposals by 7 August. ESMA will finalise the TA and ITS for submission to the Commission, and issue the guidelines, by the end of the year.

Click on the link above for further details.