On 19 December 2023, the European Securities and Markets Authority (ESMA) published a final report on the guidelines on stress test scenarios under the Money Market Funds Regulation (MMF Regulation).

Article 28 of the MMF Regulation mandates ESMA to develop guidelines establishing common reference parameters of stress test scenarios to be included in the stress tests that MMFs or managers of MMFs are required to conduct. The guidelines are updated at least every year taking into account the latest market developments. The guidelines were last updated on 30 November 2021, and they were translated into the official EU languages on 27 January 2023 (the 2022 guidelines).

In January 2023 ESMA issued a consultation reviewing section 4.8 of the guidelines. The consultation closed on 28 April 2023.

The final report includes:

  • Updated guidelines on the methodology to implement the scenario related to the hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF.
  • Updated guidelines on specifications on the type of the 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).

The guidelines in the final report will be translated into the official EU languages and published on ESMA’s website. The publication of the translations will trigger a two-month period during which Member State competent authorities (NCAs) must notify ESMA whether they comply or intend to comply with the guidelines. The updated guidelines in the final report, including the new 2023 parameters, will apply 2 months after the publication of translations of the guidelines.  After the start of the application of the updated guidelines, managers will have to report the results of the new parameters to NCAs with their quarterly reports, for the purpose of the reporting referred to in Article 37 of the MMF Regulation and set out in Commission Implementing Regulation (EU) 2018/7084. Until then, managers should use the parameters set in the 2022 guidelines and report the results accordingly.

The European Systemic Risk Board (ESRB) has also published a document that sets out the adverse financial market scenarios for the stress testing exercise carried out by ESMA. The ESRB, in collaboration with the European Central Bank and ESMA, has updated the calibration of stress parameters for the updated ESMA guidelines.