In line with previous position papers, ALFI disagrees with EBA’s approach to classify Money Market Funds and certain AIFs as shadow banking entities.
Question 5: In general, what are your views on the treatment of funds in these draft RTS? Do you
agree with the approach adopted in these draft RTS, that follows the approach in the EBA Guidelines
on limits on exposures to shadow banking entities, or alternatively should it be extended to capture
those funds as shadow banking entities?
ALFI response:
In ALFI’s view, funds should not be considered as shadow banking entities due to manifold reasons:
- Being investment products, funds, generally speaking, operate with a completely different business
model compared to banks.
- There is a different set of regulatory requirements to mitigate risks that may be faced by investment
funds.
- Funds do not collect repayable funds from the public and accordingly their failure does not pose a
systemic risk towards the public in the same way as banks. To the contrary, funds conduct an
investment activity and investors in funds are made aware that they may lose their entire investment,
which means that the fund is generally not liable to repay invested amounts to its investors, unlike
banks that are required to repay deposits to their clients.
Keeping in mind the organic differences between banks and funds and between their respective
regulations, investment funds should in general not be considered as comparable to banks and
therefore not as shadow banking entities.
Furthermore, we do not share EBA’s view as per the definition of shadow banking entities that money
market funds (MMFs) (both UCITS and AIFs) and certain AIFs carry out banking activities outside the
regulated framework.
The MMF Regulation (MMFR), the UCITS and AIFMD directives (as well as their implementing acts)
and related ESMA Guidelines have introduced a robust regulatory framework, ensuring prudential
supervision in a manner adapted to the specificities of investment funds. This framework contains
aspects discussed in the consultation such as risk management, including credit, liquidity and leverage risk...
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© ALFI - Association of the Luxembourg Fund Industry
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