29 April 2015

EFAMA: MMFR report at odds with Capital Markets Union’s policy focus to promote alternative sources of financing to the economy

MEPs in the European Parliament voted through the ECON Report by Neena Gill MEP on the Money Market Funds Regulation (MMFR). This report followed an original proposal by the European Commission in September 2013. 

The European asset management industry has a very important stake in this legislation. CNAV and VNAV MMFs manage close to €470 bn and €440 bn respectively.

EFAMA acknowledges the work accomplished to date by the Rapporteur, Neena Gill MEP, and Shadow MEPs. However, EFAMA considers the result at odds with the current policy focus of the European Commission’s Capital Markets Union initiative. In an environment where alternatives to traditional bank lending and cross border investment are seen as vital to the future of Europe's economy, EFAMA is concerned the Report as adopted by the Parliament will, if implemented, seriously impact the ability for companies in Europe to manage their liquidity and the short term funding that MMFs provide to the capital markets.

While EFAMA welcome the Parliament’s rejection of a capital buffer for CNAV MMFs, it remains very concerned about the status of the ‘low volatility NAV’ (LVNAV) MMF. The proposed regulatory framework for this new type of MMF has the potential of allowing as a viable alternative product to investors in European CNAV Prime MMFs. However, the stringent requirements placed upon it, in particular the so-called “sunset clause” which implies that LVNAV MMFs would cease to exist after five years, make this product unworkable for fund managers and unusable by investors of MMFs in the long term. Rather than introducing interim measures before a full prohibition of CNAV MMFs, EFAMA strongly encourages EU legislators to seek a permanent alternative solution to the current CNAV model that will allow investors to take advantage of the benefits MMFs provide.

EFAMA also considers that some of the measures proposed and approved by the ECON Committee would result in serious operational challenges for VNAV MMFs and lower portfolio returns in particular because (i) MMFs would not be allowed to invest in units/shares of other MMFs, (ii) the diversification and liquidity rules have been tightened considerably, (iii) the possibilities to invest in OTC and ABCPs are strictly limited, and (iv) the use of mark-to-model valuation model is restricted.

Peter De Proft said: “We are of the view that the Parliament text goes over and above the laudable aim of legislating for systemic risk. We therefore hope that the Trilogue, which will follow the adoption of a General Approach by the Council of Ministers, will lead to a text that will allow MMFs to continue providing an important source of short-term cash management for Europe’s businesses and financing of the European economy.” 

Full press release

Full European Parliament report

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