Money Market Funds (MMFs) are regarded by many treasurers as a useful tool for managing liquidity, especially MMFs that offer the ready access and “cash & cash equivalent” accounting status of bank deposits whilst spreading the credit risk across a portfolio of highly rated debt instruments.
Following the economic shock and related liquidity stress experienced in March 2020, as a reaction to the COVID pandemic, the authorities (globally) remain concerned that underlying vulnerabilities within MMFs could continue to pose a threat to financial stability, despite the reforms to MMFs previously undertaken. In November 2021 the FSB published a final report with a broad range of new policy options to enhance MMF resilience. These options are being considered by individual jurisdictions. Last month the ACT contributed to a response by the EACT to the EU Commission’s Consultation document: Functioning of the Money Market Fund Regulation (12 April 2022)
The FCA and Bank of England have issued a joint Discussion Paper asking for views on how Money Markets Funds in the UK should be operationalised in future:
UK authorities look to strengthen resilience of Money Market Funds | FCA
The Discussion Paper considers possible policy changes that would affect UK MMFs and their users (including investors in MMFs and issuers who use MMFs for funding purposes). Such policy changes are also relevant to non-UK MMFs that are marketed to UK investors. An aim of the consultation is to support the provision of sustainable and robust cash management financial services that meet the needs of users including at times of financial stress.
Chapter 2 discusses the current role of MMFs in the UK economy, who uses them and for what purpose, including on a cross-border basis.
Chapter 3 discusses the nature and extent of the systemic risk that MMFs pose and the vulnerabilities within their structure that may amplify risks to the UK, using past events as case studies.
Chapter 4 discusses the set of policy options the FSB proposed to enhance MMF resilience. Where possible, this chapter also puts forward the UK authorities’ initial thinking on the possible effectiveness and proportionality of those options.
The UK authorities prefer (and take great consideration of) any individual submissions and so we so would strongly encourage you to submit a response by the deadline 23 July.
Please note, you do not need to answer all the questions – just the ones relevant to you!
The ACT will also submit a response, so please feel free to share any thoughts with technical@treasurers.org using the subject line “MMF UK Consultation”.
