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MMF regulation about to become EU law

Chris Hamblin, Editor, London, 25 April 2017

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The Money Market Fund (MMF) regulation has been finalised by a vote in the European Parliament. The new rules include an obligation to value the assets of a fund each day.

Amanda Rowland, asset management regulation partner at PwC, told Compliance Matters: “Action is now required for asset managers as today’s vote has finalised the regulatory regime. The most critical issue will be assessing whether current funds offering a constant net asset value (CNAV) will be able to continue to do so under the new criteria.

“Many fund managers will be faced with difficult choices when changing their portfolios to meet more stringent CNAV requirements or moving towards variable net asset value funds. Some may choose to shut down their MMFs altogether. Funds remaining as CNAV will need to prepare to use liquidity fees and redemption suspensions under certain circumstances, and all MMF managers will have to address the detailed rules around eligible assets, portfolio maturity, liquidity, valuation and transparency.

“Those who have not already done so need to start seriously considering these strategic choices and begin what is likely to be quite a complicated journey around client communications, governance procedures and revisions to the prospectus. While the industry won many important battles during the long negotiation process, including the abandonment of a 3% capital buffer, the final regulation will still prove very challenging to implement.”

MMFs are mutual funds that attempt to maintain price stability by having portfolios comprised of short-term and high quality securities. The regulation-to-be will become law 20 days after being published in the EU Official Journal, which ought to happen shortly. Firms will have 12 months from the MMF Regulation becoming law before they have to meet the requirements. The parliamentary vote confirms the scope of the requirements and gives firms a better sense of when the rules will have "teeth", i.e. sometime early in the second quarter of 2018.

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