On 4 September 2013, following consultation with interested parties throughout 2012, the European Commission (the "Commission") published draft Money Market Fund ("MMF") regulations (the "Regulations").

MMFs are a key source of short-term financing for financial institutions, corporate bodies and governments across the European Union (the "EU"). MMFs have total assets under management of approximately €1 trillion. This amounts to approximately 15% of the European funds industry.

Given the role they play and the potential for systemic risk where a "run" on such funds occurs, the Commission set about drafting regulations to encompass those principles included in pre-existing Committee of European Securities Regulators ("CESR") and European Securities and Markets Authority ("ESMA") guidelines.

The Regulations

The purpose of the Regulations is to introduce common standards across the EU in an attempt to ensure stability across the MMF industry. The four key provisions proposed to ensure this include:

  • a requirement for daily/weekly liquidity so that an MMF can satisfy redemption requests in a timely manner. MMFs are obliged to hold at least 10% of their assets in instruments that mature on a daily basis with an additional 20% of assets held in instruments that mature within one week;
  • clear labelling of MMFs as either short term MMFs or standard MMFs;
  • a requirement for each MMF to maintain a capital cushion or "Net Asset Value Buffer" amounting to 3% of the assets under management of the MMF;
  • a requirement for MMFs to undertake customer profiling in a bid to anticipate large redemptions; and
  • the establishment of internal creditrisk assessment by the manager of the MMF so that over reliance on external ratings can be avoided.

Regulations to Work in Tandem with Existing Regimes

The majority of MMFs operate under the Undertakings for Collective Investment in Transferable Securities ("UCITS") regime with the remaining MMFs subject to the provisions of the Alternative Investment Fund Managers Directive ("AIFMD"). The Regulations have been drafted on the basis that reliance will be placed on the existing UCITS regime for those MMFs subject to it. For those subject to the AIFMD, the Regulations will provide a more harmonised regime for alternative investment funds established as MMFs. However, it can be noted that the requirements of the UCITS regime and the AIFMD will continue to apply. The Regulations will complement those existing regimes and MMFs will be obliged to ensure their compliance with all applicable provisions.

Call for Alignment with the US

While the proposed Regulations are welcomed, the Irish Funds Industry Association (the "IFIA") has called for the implementation of a consistent global response to MMFs and the systemic risk that they pose. The IFIA fears that a failure to do so will lead to significant cross border arbitrage between the US and the EU, as the US is not proposing a 3% "Net Asset Value Buffer". The IFIA has warned that a failure to apply a consistent approach could jeopardise Europe's €1 trillion MMF industry.

Next Steps

The Regulations will now move to be considered by the European Parliament and the European Council of Ministers. Mason Hayes & Curran will continue to monitor the progress of the Regulations and will provide further updates as they arise. resolved within five joint business days, each party is obliged to escalate the dispute to those senior members of each party in a position to deal with the dispute.

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