United Kingdom (and EU regulation)

ESMA updates guidelines on stress tests for money market funds

On 16 December 2020, the European Securities and Markets Authority (ESMA) published a report containing the 2020 update of the guidelines on money market fund (MMF) stress tests. The update takes account of MMFs recent experience during March 2020, particularly in relation to redemption scenarios.

The report includes:

Unchanged principle-based guidelines on stress testing the MMF or the manager of an MMF shall regularly conduct (sections 4.1 to 4.7 of the guidelines).
Unchanged guidelines under section 4.8 of the guidelines (guidelines on the establishment of common reference stress test scenarios the results of which should be included in the reporting template mentioned in Article 37(4) of the MMF Regulation).
Updated guidelines on specifications on the type of stress tests and their calibration, so that managers of MMFs have the information needed to fill in the corresponding fields in the reporting template mentioned in Article 37 of the MMF Regulation (section 5 of the guidelines – updates in red in the annex).

MMFs and managers of MMFs are expected to measure the impact of the common reference stress test scenarios specified in the guidelines. On the basis of these measurements, they are expected to fill in the reporting template referred to in Article 37 of the MMF Regulation and set out in Commission Implementing Regulation (EU) 2018/7083 and send the results to NCAs with their quarterly reports required by Article 37. The first reports were due to be sent in September 2020, and as indicated in the ESMA statement published in August 20204, pending the publication of the translation of the updated guidelines included in this final report, the 2019 parameters were due to be used for the purpose of this reporting and should continue to be used for the moment. The new 2020 parameters set out in the updated guidelines included in this final report will have to be used for the purpose of the first reporting period following the start of the application of the updated guidelines (i.e. 2 months after the publication of their translations).