Regulations concerning EU money market funds should not be fundamentally reformed, argues the European Fund and Asset Management Association (EFAMA).
In its published response to ESMA’s consultation advocating alterations to regulations, EFAMA has insisted that any reform of the EU Money Market Fund Regulation (MMFR) regime needs to be carefully assessed to preserve the intermediary role that MMFs play in short-term money markets. It believes they continue to offer a critical alternative to traditional bank financing.
Among its primary complaints, EFAMA opposes ESMA’s proposed recalibration of existing liquidity levels, which it believes would create a “performance drag” to the detriment of corporate and institutional investors, thus diminishing the attractiveness of non-public debt MMFs in particular. It believes the recalibration would also risk blurring the distinction between market-based financing versus bank financing in the eyes of investors, supervisors and the general public.
The association additionally oppose the option to eliminate LVNAV and public debt CNAV funds. It believes would reduce sources of market financing and increase reliance on traditional bank intermediation, thus countering the EU’s prospects for a Capital Markets Union.
Thirdly, EFAMA believes that the MMFR’s explicit ban of “external support” - when an affiliated bank would step in to support the fund's NAV - should stay in place, as such a ban marks an important positive difference to other global jurisdictions like the US.
Overall, the association believes that European MMFs have provided a high-quality, well-diversified and liquid investment option at a time when markets underwent considerable stress, while offering both investors and regulators complete transparency around funds’ portfolio holdings and liquidity levels.
It believes that European MMFs continued to meet redemptions throughout 2020, even though liquidity management proved challenging for all market participants in March 2020.
Federico Cupelli, senior regulatory policy adviser at EFAMA said: “We insist that the money market fund reform efforts in Europe and globally remain fact-based and do not lose sight of the importance of a functioning underlying secondary market structure where short-term securities are traded. Reform efforts should, for instance, focus more on incentivising liquidity provisions by bank dealers during periods of heightened stress, avoiding a dominant focus on the buy-side. Otherwise, we risk reducing the number of alternative sources of financing to banks, to the detriment of issuers and investors.”