On 26 February 2015, the European Parliament’s Economic and Monetary Affairs Committee (ECON) voted on a draft report on the proposed regulation on Money Market Funds (MMF Regulation).
The European Parliament Press Release that followed the vote stated that ECON had “approved a draft law that would make MMFs safer, provide for more transparency, investor information and investor protection”.
Under the draft report as approved by ECON, there will be two types of constant net asset value (CNAV) MMFs, namely:
- A Retail CNAV MMF, which will only be available for subscription by charities, non-profit organisations, public authorities and public foundations
- A Public Debt CNAV MMF, which would be required to invest 99.5% of its assets in public debt instruments
In addition, ECON has proposed a new type of MMF called a Low Volatility Net Asset Value MMF (LVNAV MMF), which will, under strict conditions, be able to display a constant net asset value. However, it seems to be the case that authorisation of this type of fund would lapse 5 years after the MMF Regulation comes into force.
Each of the Retail CNAV MMF, Public Debt CNAV MMF and LVNAV MMF will be required to have in place liquidity fee mechanisms and redemption gates.
Other key aspects of the draft report include the following:
- MMFs would be required to diversify their asset portfolios
- MMFs would be required to follow strict liquidity and concentration requirements and have in place sound stress testing processes
- MMFs would have to report on a weekly basis to investors the MMF’s liquidity profile, the credit profile and portfolio composition, the weighted average life and weighted average maturity of the portfolio as well as the concentration of the top five investors in the MMF
Importantly, it does however seem to be the case that ECON has decided against the controversial proposal that CNAV MMFs would be required to have a 3% capital buffer in place.
As the text of this report adopted by the ECON has not yet been published, further detail is not yet available in respect of ECON’s position.
The draft report as adopted by ECON is scheduled for a vote in the plenary session of the European Parliament to be held from the 27 to the 30 April 2015. As part of the ordinary legislative procedure in the EU, the Council must also approve the MMF Regulation before it has the force of law.