On 7 December 2016, the Council of the EU confirmed its agreement on the final text of the draft Regulation on money market funds (MMF Regulation). The European Parliament subsequently agreed the text of the MMF Regulation in plenary session on 5 April 2017. The publication of the MMF Regulation in the Official Journal of the EU is expected in Q2 2017.
Article 15(7) of the MMF Regulation empowers the European Commission (Commission) to adopt delegated acts specifying liquidity and credit quality requirements applicable to assets received as part of a reverse repurchase agreement. In a letter dated 20 January 2017, the European Securities and Markets Authority (ESMA) was asked to provide technical advice to the Commission.
Article 22 of the MMF Regulation empowers the Commission to adopt a delegated act specifying the:
- criteria for the validation of the credit quality assessment methodologies referred to in Article 17 of the MMF Regulation;
- meaning of the “material change” that could have an impact on the existing assessment of the instrument and that would trigger a new credit quality assessment for a money market instrument;
- criteria for quantification of the credit risk and the relative risk of default of an issuer and of the instrument in which the MMF invests; and
- criteria to establish qualitative indicators on the issuer of the instrument.
In its letter of 20 January 2017, the Commission asked ESMA to provide technical advice on these topics.
Article 37 of the MMF Regulation provides that ESMA shall develop draft implementing technical standards (ITS) to establish a reporting template containing all the information managers of MMFs are required to send to the competent authority of the MMF.
Article 28 of the MMF Regulation provides that ESMA shall develop guidelines with a view to establishing common reference parameters of the stress test scenarios to be included in the stress tests managers of MMFs are required to conduct.
ESMA has now published a consultation paper that represents the first stage in the development of the technical advice, ITS and guidelines described above.
The deadline for comments on the consultation paper is 7 August 2017.
The responses to the consultation will help ESMA in finalising the draft technical advice and ITS (for submission to the Commission), as well as the guidelines (for publication).