On January 24, 2018, the FCA launched a consultation on necessary changes to its Handbook for the functioning of the Money Market Funds Regulation, which came into force on July 21, 2017. Although the MMF Regulation is directly applicable under EU law, some areas of the U.K. regulatory framework will need to be changed to ensure they align with it. The FCA's consultation sets out proposals to make certain amendments to the Handbook to ensure that it is consistent with the requirements of the MMF Regulation. The FCA also proposes to introduce application fees for the authorization of MMFs and periodic fees to help meet the cost of supervising MMFs' adherence to the MMF Regulation.
The MMF Regulation is one of a range of EU policy measures to address risk arising from so-called "shadow banking," which is the term often used to refer to credit intermediation by entities and activities outside the banking sector. The financial crisis revealed that some MMFs were vulnerable during periods of high market turbulence, during which it was difficult for these funds to maintain liquidity and stability, particularly in the face of investor runs. Consequently they could pose a serious risk of contagion in the wider financial system. The MMF Regulation strengthens, in particular, the quality and liquidity of the asset portfolios held by MMFs. It also establishes, for some of these funds, capital buffers in order to cover the gaps in valuation associated with fluctuations in their asset value.
The MMF Regulation will apply to new MMFs from July 21, 2018 and to existing MMFs from January 21, 2019. Comments on the consultation are invited by March 23, 2018.
The Consultation (FCA CP18/04) is available at: https://www.fca.org.uk/publication/consultation/cp18-04.pdf and the online response form is available at: https://www.fca.org.uk/cp18-04-response-form.
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