Money Market Funds | Regulation's Full Impact is Fast Approaching

On April 5^th 2017, the European Parliament approved the Regulation (EU) 2017/1131 of June 14^th 2017 on Money Market Funds (the “MMF Regulation”). The MMF Regulation enters in effect on July 21^st 2018.

On January 15^th 2018 the European Commission, in preparation for the introduction of full compliance, has published a Roadmap initiative based on Articles 11(4), 15(7) and 22 of the MMF Regulation.

This initiative’s key aim is to better inform stakeholders about the ongoing work of the European Commission in relation to the MMF Regulation and to allow them to provide feedback and to participate in future consultation activities.

What will follow now are delegated acts:

• one delegated act intended to ensure that MMF managers invest in assets with a favourable credit risk assessment, with respect to:
  • direct investments by the manager; and
  • the received collateral from a reverse repo agreement that must also receive a favourable assessment.
     
• another delegated act will aim to ensure full compliance of the provisions in the MMF Regulation with criteria for Simple Transparent Standardised Securitisation (STS) and Assets Back Commercial Papers (ABCP) under the Regulation 2017/2402 on Simple, Transparent and Standardised Securitisation of December 12^th 2017.

In relation to the delegated act intended to ensure that MMF managers invest in assets with a favourable credit risk assessment, on November 13^th 2017, the European Securities and Markets Authority (“ESMA”) published a final report on the MMF Regulation (the “Final Report”). The Final Report contains final versions of the technical advice regarding the credit quality, draft implementing technical standards regarding the reporting template, and also guidelines on stress test scenarios carried out by MMF managers under the MMF Regulation. The key requirements relate to asset liquidity and credit quality, the establishment of a reporting template and stress test scenarios carried out by MMF managers.

In the cover letter of the Final Report ESMA sought the views of the legal services of the European Commission regarding the practice of share cancellation, also known as reverse distribution or share destruction.

On January 19^th 2018 the European Commission reverted. They are of the opinion that the practice of share cancellation is not compatible with the MMF Regulation. ESMA is now assessing the consequences of the letter and considering possible next steps with a view to promoting convergent application of the MMF Regulation across the EU.