On 10 May 2016, the Dutch presidency of the Council of the EU published a fifth compromise text on the proposed Regulation on Money Market Funds (MMF Regulation). This latest compromise proposal sets out a number of amendments to the fourth proposal, the more material of which are set out below:
- Constant Net Asset Value (CNAV) Money Market Funds (MMFs) will only be permitted to operate in the EU as either a CNAV MMF that invests in public debt instruments, or as a Low Volatility Net Asset Value MMF (LVNAV MMF).
- UCITS MMFs will be authorised under both the UCITS Directive and the MMF Regulation.
- AIF MMFs will be authorised under the MMF Regulation and may also be authorised under domestic investment fund legislation.
- MMFs will be permitted to hold ancillary liquid assets, such as cash, current accounts or demand deposit accounts.
- MMFs must establish a credit quality assessment procedure to perform credit quality assessments of both money market instruments and their issuers taking into account their relative risk of default. A manager of a MMF should report to the board at least annually on the MMF’s credit risk profile following an analysis of the results of the MMF’s internal credit quality assessments.
- A CNAV MMF, a LVNAV MMF and a Variable Net Asset Value (VNAV) MMF may all take the form of a short-term MMF. Only a VNAV MMF may take the form of a standard MMF.
- Subject to certain conditions a MMF may also invest in:
- High quality money market instruments
- Eligible securitisations and asset backed commercial paper
The extension of the transitional period from one to two years following the entry into force of the MMF Regulation, as recommended in the fourth compromise proposal, has been retained. This means that existing CNAV MMFs will have two years to convert to either CNAV MMFs that invest in public debt instruments, LVNAV MMFs or VNAV MMFs.