As part of the Financial Stability Board’s work plan on shadow banking, IOSCO has published its final report with policy recommendations for money market funds (MMFs). The report analyses the systemic risk MMFs pose and makes 15 recommendations, amongst them:
- limitations to the types of assets in which MMFs may invest, diversification ratios and limits to asset-liability mismatches;
- the use of the fair value principle when valuing, restricting the use of the amortised cost method to instruments with low residual maturity;
- holding of a minimum amount of liquid assets to face redemptions and prevent fire sales;
- MMFs' ability to use tools such as temporary suspensions, gates and/or redemptions in kind, in order to manage a run on the fund;
- conversion to variable NAV or safeguards to reinforce constant NAV MMFs' resilience;
- avoidance of mechanistic reliance on external ratings, to reduce herding and “cliff effects”; and
- strengthening the framework applicable to the use of repo by MMFs.