29 October 2013

EACT Position on the EU's proposed Money Market Funds Regulation

The EACT has published a position statement commenting on the EU's proposed Money Market Funds regulation. The EU's intention to require CNAV funds to hold a capital buffer is also highlighted as a measure that is likely to make the CNAV product unviable; the EACT proposes instead improvements in disclosure and the use of liquidity gates and fees, the combination of all of which would better support the real economy than introducing capital buffers.

The EACT supports a stable financial sector that meets the essential service requirements of the real economy. As a result of the financial crisis, an unprecedented regulatory overhaul of the financial system has been and is still underway. Whereas many of these measures are necessary in order to stabilise the financial system, it is becoming increasingly clear that some have major impact and unintended consequences for the real economy as the end-users of financial services.

The use of MMFs is not limited to the commercial sector; in many Member States investment of surplus funds in MMFs is a key activity for charities and public as well as ‘third’ sector organisations. For all these economic actors MMFs have historically offered minimum risk, good Access to cash and acceptable returns.

It is EACT’s view that there is one fundamental flaw in the Commission’s proposal. This concerns the removal of external credit ratings. EACT is also concerned that by introducing what is in effect an obligatory requirement for a capital buffer to be held by Constant Net Asset Value (CNAV) funds the proposal will eliminate the CNAV product, which for some participants in the real economy is an acceptable and important investment medium. Taking these two points together MMFs will lose their role in cash management. EACT believes that  the overall result will  have a damaging impact on the real economy and increase rather than decrease financial systemic risk.

Full letter

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