EU reaches agreement on money market fund regulations
0The European Union has finally thrashed out new rules on money market funds – although full details remain unclear.
A deal was agreed last week, following the fifth “trilogue” meeting between the European parliament, council and commission.
The agreement will see the introduction of a new category of MMF – the low volatility net asset value (LVNAV) MMF, but it is still unclear whether the threatened abolition of constant net value (CNAV) MMFs is included.
Photo: European Parliament
However, MEP Neena Gill, European Parliament rapporteur on MMFs, said: “I believe this is a win-win deal for both major European MMF sectors, variable and constant net asset value MMFs respectively.”
She said that the key objectives of preventing future systemic risks and runs on MMFs have been addressed by the new deal.
She said: “I am particularly pleased we found a viable operational model for low volatility net asset value (LVNAV) MMFs, which was introduced at the European Parliament’s initiative.”
The new LVNAV would have strict concentration requirements to reduce risk, plus strict daily and weekly liquidity requirements.
It will also have a strict portfolio fluctuation band, meaning that it cannot deviate by more than 20 basis points from the actual net asset value – far stricter than the 50 basis points used by CNAVs.
In addition, LVNAVs would have a new regime of “fees and gates” to help prevent runs in times of crisis.
The deal will now go to the Committee of Permanent Representatives in the European Union, made up of the head or deputy head of mission from the EU member states in Brussels.
After that committee has carried out work to finalise technical issues, legislation will be put before parliament late this year or early next for a vote.
After originally proposing to abolish CNAVs, the European Parliament’s economic and monetary affairs committee (ECON) voted by 35 to 18 for a compromise draft document, which would allow public bodies to continue investing in constant net asset value MMFs.
Public sector bodies and charities had opposed the move to abolish CNAVs, but it is as yet unclear if the compromise has survived the trilogue process.
