On 26 March 2021, the European Securities and Markets Authority (ESMA) issued a consultation paper on potential reforms of the EU Money Market Funds Regulation (MMFR).

The consultation paper:

  • Presents an overview of the EU MMF market.
  • Describes certain key features of the issues faced by MMFs during the COVID-19 pandemic in March 2020.
  • Presents areas of reform of the MMF policy identified at the international level.
  • Focuses on the potential areas of reform of the MMFR and seeks stakeholders’ input through specific questions.

In terms of potential areas of reform the consultation paper focuses on:

  • Reforms targeting the liability side of MMFs – such as decoupling regulatory thresholds from suspensions/gates to limit liquidity stress, and to require MMF managers to use liquidity management tools such as swing pricing.
  • Reforms targeting the asset side of MMFs by, for example, reviewing requirements around liquidity buffers and their use.
  • Reforms targeting both the liability and asset side of MMFs by reviewing the status of certain types of MMFs such as stable net asset value MMFs and low volatility net asset value.
  • Reforms that are external to MMFs themselves by assessing whether the role of sponsor support should be modified. In addition, feedback is sought on other potential changes, particularly linked to ratings, disclosure and stress testing.

The deadline for responses to the consultation paper is 30 June 2021.

ESMA will consider the feedback to the consultation paper in Q2 2021 and expects to publish an opinion on the review of the MMFR in the second half of 2021.

Article 46 of the MMFR requires the European Commission to review, following consultations with ESMA, the adequacy of the MMFR from a prudential and economic point of view by 21 July 2022.

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