17 February 2014

Reuters: EU lawmakers delay money market, benchmark rules

The funds are also used by banks for short-term funding and the most contested element is a requirement for one type of fund, known as constant net asset value (CNAV), to hold a cash buffer equivalent to 3 per cent of assets.

The European Parliament's economic affairs committee found itself split over regulating money market funds, a trillion euro sector in the 28-country bloc. The aim is to stem any runs on the funds by investors during future financial crises. The Association of Corporate Treasurers has said the changes would make the funds unviable and threaten an essential cash management tool for leading companies in many industries. CNAV funds account for half of the money market funds in the EU, most of which are based in Luxembourg, Ireland and France.

CNAV funds aim to have a constant, one-euro share price but many regulators prefer the transparency of the other main type of fund known as variable net asset value of VNAV, whose share price fluctuates in line with the market's ups and downs. CNAV funds are effectively banned in France, whose regulator is anxious that the draft law is not diluted.

"Our first choice by far is a ban on CNAV funds for financial stability reasons but, for a compromise, having a minimum 3 per cent capital buffer on them would be acceptable only if the threshold of 3 per cent is maintained", said Benoit de Juvigny, secretary general of French regulator AMF. "I have been surprised at how the CNAV industry has reacted, because converting from CNAV to VNAV is not so impossible to organise", de Juvigny said.

Time is running out as parliament goes to the polls in May and a new European Commission, whose role is vital in EU lawmaking, will not be appointed until the end of October. As expected, lawmakers delayed voting on a law to regulate financial benchmarks like Libor due to splits over which indices should fall within its scope. Some members say energy and commodity indices should be left out, while others want them included.

As allegations emerged of rigging in foreign exchange benchmarks as well, some lawmakers argued that the new rules must be crystal clear even if that means a delay. Votes could take place on March 3, but some lawmakers were doubtful of this. The agreement of EU states is also needed for the two measures to become law. The lawmakers know that, without a united front, their ability to shape the final deal is weaker.

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Summary record of the ECON-meeting on 17.2.14

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