12 June 2013

Reuters: Ireland calls on EU and US to align money market rules

The European Union and the United States should align their rules for money market funds to avoid European funds relocating across the Atlantic, a senior regulator in Ireland said.

Unlike the United States, the EU is considering imposing a cash buffer on major money market funds as part of efforts to regulate the shadow banking industry, which deals in trillions of dollars in assets, but operates outside the mainstream banking sector.

Patrick Brady, director of policy and risk at the Irish central bank, warned that a divergent approach could create more problems for European regulators. "There should be sufficient alignment across the Atlantic so that there is no distortion in the location of money market funds; money market funds located in the US or indeed in Cayman, can invest in European banks and, therefore, present as much of a systemic risk for Europe as money market funds located in Europe", he said.

Money market funds hold short-term financial instruments such as deposits and commercial paper and are used by big companies to park money and manage cash flows. Brady said the Financial Stability Board, the regulatory task force for the G20 group of economies, and global securities regulator, the International Organisation of Securities Commissions (IOSCO) could possibly take up the issue if the United States and Europe could not align their regulatory approaches.

Along with France and Luxembourg, Ireland is a major centre for the €1 trillion money market fund industry in Europe and fears tougher EU rules will trigger an exodus of funds from the region.

The European Commission has not yet issued its formal proposal to regulate money markets but under a draft law, a copy of which was obtained by Reuters last month, about half of the region's money market funds would have to hold three per cent of the value of their fund in cash to help shield them from the risk of a run by investors.

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