Objectives
The Money Market Funds (MMF) Regulation is one of the final post-2008 reforms which completes the regulatory framework for the finance industry. It seeks to provide a better framework for money market products and to reduce the risks associated with sudden large-scale fund redemptions (known as a "run").
Main provisions
This regulation is principally based on Regulation (EU) 2017/1131 on money market funds, published on the Official Journal of the European Union on 30 June 2017.
SCOPE OF APPLICATION
The Regulation applies to all funds established, managed or marketed within the European Union, and which are classified as "money market funds". These funds have the following characteristics:
- UCITS pr AIF,
- Invest in short-term assets (residual maturity under two years),
- Offer returns in line with money market rates and/or protect the initial investment.
However, every UCITS and AIF with characteristics that are substancially similar to money market funds (investment policy, return) will be required to obtain approval as an MMF or change some of their characteristics.
A UCITS or AIF will no longer be able to use a name that suggests that it is an MMF if it has not been approved as an MMF.
The MMF Regulation applies:
- As of 21 July 2018, to funds created after 21 July 2017
- As of 21 January 2019, to funds created before 21 July 2017
GENERAL PRINCIPLES
- Objectives and main associated regulatory provisions
| Objectives | Main associated provisions |
| Quality of assets Safeguarding of money market funds to reduce the risk of a liquidity crisis |
|
| Liquidity Safeguarding of money market funds to reduce the risk of a liquidity crisis |
|
| Reduced risk of contagion to the rest of the economy |
|
| Investor protection |
|
| Transparency requirement |
|
- Main categories of money market funds
| Standard VNAV | Short-term VNAV | Short-term LNAV | Short-term CNAV | |
|---|---|---|---|---|
| Investment policy | Broad | Government debt | ||
| Modified duration (WAM) | 6 months | 60 days | ||
| Credit riskt (WAL) | 12 months | 120 days | ||
| Liquidity available within 1 day | 7,5% AUM | 10% AUM | ||
| Liquidity available within 1 week | 15% AUM | 30% AUM | ||
| Valuation | Mark-to-Market | |||
| Alternative valuation | Mark-to-Model | |||
| Exemptive valuation | - | Hybrid Mark-to-Market (>75 days) Linear (<75 days), except if Mark-to-Market <10bp | Linear | |
| NAV | VNAV | LVNAV Variable or constant VNAV > 20bp | CVNAV | |
| Daily publication | NAV | NAV + difference with VNAV | ||
| Additional constraints on liquidity | - | Suspension and/or capping of redemptions and/or anti-dilution measures
| ||
CHALLENGES AND SOLUTIONS
As a major player in the administration and accounting of MMFs, CACEIS assits its clients in implementing the MMF Regulation.
This Regulation requires the adaptation of multiple aspects of fund administration and depositary control, including valuation methods, multiple valuations, regulatory and contractual ratios, financial statements and the management of liabilities. CACEIS is making good progress and is adapting its information system in order to offer a fund administration and depositary control solution that is fully compliant with this new Regulation from July 2018.
Thereafter, CACEIS will analyse the implications of the regulatory reporting that will become mandatory from the fourth quarter of 2019, for which clarification from the ESMA is still pending.
If you have any questions, please do not hesitate to contact your usual sales contact.
Key dates
20 July 2017
ENTRY INTO FORCE - Regulation (EU) n° 2017/1131 of 14 June 2017 on money market funds entered into force
Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 201721 July 2018
IMPLEMENTATION - Regulation (EU) 2017/1131 of 14 June 2017 on money market funds applicable to funds created after 21 July 2017
21 January 2019
IMPLEMENTATION - Regulation (EU) 2017/1131 of 14 June 2017 on money market funds applicable to funds created before 21 July 2017
26 March 2021
ESMA public consultation on an overhaul of the MMF rules (closes 30 June 2021).
21 July 2022
REVIEW - The suitability of the MMF Regulation will be reviewed
