Esma proposes reforms to improve resilience of money markets funds

02/05/2022

On 16 February 2022, the European Securities and Markets Authority (ESMA) is issuing an Opinion containing proposed reforms to the regulatory framework for EU Money Market Funds (MMFs) under the Money Market Funds Regulation (MMFR).

The proposals will improve the resilience of MMFs by addressing in particular liquidity issues and the threshold effects for constant net asset value (CNAV) MMFs.

The ESMA Opinion includes the following key policy measures aimed at improving the resilience of MMFs:

  • Addressing the threshold effects for constant net asset value (CNAV) MMFs, by removing the possibility to use amortized costs for low volatility NAV (LVNAVs) MMFs; and decoupling regulatory thresholds from suspensions, gates and redemption fees for LVNAV/CNAV MMFs.

  • Addressing liquidity related issues by:

    • Ensuring mandatory availability of at least one liquidity management tool for all MMFs;

    • Amendments of the Daily liquid asset/ Weekly liquid assets ratios as well as the pool of eligible assets, including public debt assets, which can be used to satisfy these liquidity ratios; and

    • Inclusion/Reinforcement of the possibility to temporarily use liquidity buffers in times of stress.

In addition, ESMA is proposing complementary reforms aimed at enhancing MMFs’ preparedness for a crisis.  These include enhancements of reporting requirements and the stress testing framework, as well as clarification of the requirements on external support and new disclosure requirements linked to the rating of MMFs.

Head of Knowledge Management Strategy and Market Infrastructure - SGSS