On July 13, 2018, a Commission Delegated Regulation amending and supplementing the European Money Market Funds Regulation was published in the Official Journal of the European Union. The MMF Regulation, which applies directly across the EU from July 21, 2018, allows MMFs to invest in securitizations or asset- backed commercial paper and incentivizes the investment in simple, transparent and standardized securitizations. The Delegated Regulation amends the MMF Regulation by applying the requirements for STS securitizations provided for in the Securitization Regulation (also known as the STS Regulation).
The MMF Regulation also allows an MMF to enter into a reverse repurchase agreement provided that certain conditions are met. The assets received by the MMF under that agreement must be money market instruments that meet certain requirements. A derogation from those requirements provides that an MMF may also receive instruments that are either: (i) issued or guaranteed by the EU, a central authority or central bank of a Member State, the ECB, the European Investment Bank, the European Stability Mechanism or the European Financial Stability Facility; or (ii) issued or guaranteed by a central authority or central bank of a third country. The Delegated Regulation supplements the MMF Regulation by providing the quantitative and qualitative liquidity requirements for the assets that an MMF receives under a reverse repurchase agreement where the derogation is being used.
The MMF Regulation empowers the European Commission to adopt delegated acts that aim to ensure that MMFs are invested in appropriate eligible assets by further specifying the credit quality assessments of money market instruments, securitizations and ABCPs that MMFs may undertake or invest in. The Delegated Regulation includes these provisions by setting out: (i) the criteria for the validation of the credit quality assessment methodology; (ii) the criteria for quantification of the credit risk and of the relative risk of default of an issuer and of the instrument; (iii) the criteria for establishing qualitative indicators on the issuer of the instrument; and (iv) the meaning of 'material change' as referred to in the requirement for an MMF to conduct a new credit quality assessment for a money market instrument, securitization and ABCP when there is a material change that could have an impact on the existing assessment of the instrument.
The Delegated Regulation will apply from July 21, 2018, except for the provision cross-referring to the Securitization Regulation, which will apply from January 1, 2019 to align it with the application date of that Regulation.
The amending Regulation is available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R0990&from=EN.
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