On 11 October 2021, the Financial Stability Board (FSB) published a report which forms a key part of its work programme on non-bank financial intermediation. The policy proposals in the report aim to address systematic risk and minimise the need for future extraordinary central bank interventions to support the sector alongside enhancing money market fund (MMF) resilience.

MMFs are subject to two main vulnerabilities: susceptibility to sudden and disruptive redemptions and difficulties selling assets, particularly under stressed conditions. The prevalence of these vulnerabilities in individual jurisdictions may depend on market structures, use and characteristics of MMFs.

The report considers the likely effects of policy options which address MMFs’ vulnerabilities. FSB members are assessing vulnerabilities in their jurisdiction and will address them using the framework and policy toolkit in the report, in line with their domestic legal frameworks. The FSB recognises that each jurisdiction requires flexibility to tailor measures to their circumstances. It also stresses the importance of working together with international jurisdictions to implement new policies and avoid regulatory arbitrage.

The policy options include mechanisms to:

  • impose on redeeming fund investors the cost of their redemptions;
  • absorb credit losses;
  • address regulatory thresholds that may give rise to cliff effects; and
  • reduce liquidity transformation.

The options under each mechanism include:

  • swing pricing;
  • minimum balance at risk and a capital buffer;
  • removal of ties between regulatory thresholds and imposition of fees/gates and removal of the stable net asset value; and
  • limits on eligible assets and additional liquidity requirements and escalation procedures.

The report also notes how member jurisdictions can combine and prioritise these options.

The FSB together with the International Organisation of Securities Commissions (IOSCO) will be reviewing progress in member jurisdictions which will involve a stocktake which will be completed by the end of 2023. This stocktake will be followed up in 2026 to assess the effectiveness of these measures in addressing risks to financial stability.

The IOSCO also plans to revisit its 2012 Policy Recommendations for MMFs. Dependent upon the timing of this review it may form part of the initial stocktake by the FSB and IOSCO.


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