European Union: Money Market Funds Regulation ("MMF Regulation") Update - August 2018

Money Market Funds Regulation ("MMF Regulation") Update

1. Commencement of a Delegated Regulation

On 10 April 2018 the European Commission adopted a Regulation (the "Delegated Regulation") amending and supplementing the MMF Regulation. On 13 July 2018, the Delegated Regulation was published in the Official Journal of the EU ("OJ") and will enter into force on 2 August 2018. However, the Delegated Regulation will apply to new and existing money market funds ("MMFs") from 21 July 2018 with the exception of Article 1 (which contains the amendment to the MMFR set out at (a) below) which will apply from 1 January 2019.

The Delegated Regulation imposes additional requirements on managers of MMFs where they are investing in certain categories of assets, as follows:

  1. Simple, transparent and standardised ("STS") securitisations and asset-backed commercial papers ("ABCPs")

    Under the MMF Regulation, there is a specific incentive to invest in STS securitisations and ABCPs. In this regard, the Delegated Regulation simply amends the MMF Regulation to cross-refer to the securitisation regime already set down in Regulation (EU) 2017/2402 (which set out a general framework for securitisation and created a specific framework for STS securitisation).
  2. Assets received under a Reverse Repurchase Agreement

    The Delegated Regulation provides clarity on the specific quantitative and qualitative requirements relating to assets received under reverse repurchase agreements, which include:

    • the assets shall be subject to haircuts in accordance with the requirements set out under Regulation (EU) 575/2013 (on prudential requirements for credit institutions and investment firms);
    • Managers of MMFs ("MMF Managers") are required to apply higher haircuts than the minimum thresholds set out in Regulation (EU) 575/2013 where they consider it necessary to ensure that the collateral received as part of the reverse repurchase agreement is sufficiently liquid. The Delegated Regulation prescribes a list of factors that MMF Mangers must take account of when applying a higher haircut;
    • MMF Managers are required to put in place a clear haircut policy adapted to each asset received as collateral. The policy should be documented and should substantiate each decision to apply a specific haircut to the value of an asset;
    • MMF Managers should also monitor and revise the amount of the haircut or the additional haircut taking into account the residual maturity or other factors related to the viability of the counterparty; and
    • The Delegated Regulation also provides an exempted list of counterparties of which the above requirements do not apply.
  3. Credit Quality Assessment Methodologies

    In relation to credit quality assessments carried out by MMF Managers, the Delegated Regulation requires the methodologies to include:

    1. criteria for validating the internal credit quality assessment methodologies;
    2. criteria for quantifying credit risk, and the relative risk of default of the issuer and of the instrument;
    3. criteria for establishing qualitative indicators in relation to the issuer of the instrument; and
    4. criteria for establishing qualitative credit risk indicators in relation to the issuer of the instrument.

    In addition, the Delegated Regulation provides that:

    • MMF Managers may take investment decisions that override the result of a credit quality assessment only in exceptional circumstances (such as stressed market conditions), where there is an objective reason for doing so and provided such decisions are properly documented;
    • the credit quality assessment should not be a once-off assessment, rather it should be carried out continually and should be revised, in particular, when there is a material change that could have an impact on the existing credit quality assessment of the instrument (the Delegated Regulation also defines the circumstances that give rise to a material change); and
    • MMF Managers should take into account a downgrading by a credit rating agency and should also carry out their own assessment according to their internal credit quality assessment methodology. MMF Managers are also required to establish an internal procedure for selection of credit rating agencies suited to the investment portfolio of the MMF.

2. New Central Bank of Ireland Application forms for MMFs

The Central Bank of Ireland (the "Central Bank") has published its MMFR Application Forms. The relevant application forms are applicable from 21 July 2018 and will apply to all new funds seeking to be authorised as a MMF and those existing funds transitioning under the MMF Regulation.

Timing

For all existing MMFs the transitioning deadline for compliance with the MMF Regulation is 21 January 2019. However, the Central Bank have announced that any transitioning MMFs that require prior document review (i.e. UCITS and RAIFs) should file their updated documents by 1 September 2018 to ensure that they are approved by 21 January 2019.

3. European Securities and Markets Authority (ESMA) letter to the European Commission in relation to share cancellation

On 20 July 2018, ESMA published a letter it had written to the European Commission in relation to reverse distribution mechanism (RDM) or share cancellation under the MMF Regulation.

The Letter responds to a January 2018 letter from the European Commission in which it agreed with ESMA's analysis that the practice of share cancellation is not compatible with the MMF Regulation.

In its letter, ESMA calls on the Commission to make public the text of an opinion of the Legal Service of the Commission on the compatibility of share cancellation with the MMF Regulation given that it appears the opinion has been shared with some market participants, but not all. ESMA is of the view that the Commission needs to make its interpretation clear to ensure a proper and consistent interpretation and implementation of the MMF Regulation.

4. Central Bank Review of Dealing Practices

For the last number of months the Central Bank has been liaising with MMF managers and administrators, to gather information in relation to the dealing practices used for Irish MMFs, in particular focusing on the use of what is termed 'historic pricing' in such MMFs. It is expected that the Central Bank will clarify its position on the use of such dealing practices shortly given any transitioning MMFs that require prior document review by the Central Bank will need to file updated documents by 1 September 2018.

5. Comment

The publication and entry into force of the Delegated Regulation is to be welcomed as it will provide clarity to MMF Managers in relation to the quantitative and qualitative requirements that apply to assets received under reverse repurchase agreements. In addition, the obligations prescribed in relation to credit quality assessment criteria will assist MMF Managers in drafting fund policies as well as the disclosures in the MMF's offering and constitutive documents.

The publication of the Central Bank application forms is also helpful as it provides a suitable checklist for new and existing funds under the MMF Regulation.

The ESMA letter is an important development as it should encourage the Commission to provide its analysis and reasoning behind its stance on RDM and its compatibility with the MMF Regulation. Developments on this issue will continue to be closely monitored by the industry as it is an extremely sensitive matter for many MMF Managers particularly those managing constant NAV Euro denominated MMFs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions