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ESMA issues Final Report on Consultation on the Money Market Fund Regulation

20 November 2017

ESMA has issued its Final Report on technical advice, draft implementing technical standards and guidelines under the MMF Regulation. This follows an extensive Consultation Paper which issued in May and to which Irish Funds responded

ESMA’s Final Report has taken into account feedback from Irish Funds and other stakeholders on a number of key points, including:

  • Destruction of shares – ESMA notes significant feedback on its statement regarding destruction of shares not being allowed and notes the well-established practice of reverse distribution. However, this issue remains unresolved with no timeline apparent for its conclusion. ESMA is awaiting the views of the legal services of the European Commission on this matter and will take appropriate follow-up actions in light of the pending legal assessment. Irish Funds will continue to engage on this issue.
  • The liquidity and credit quality requirements for assets received under certain types of reverse repurchase agreements – ESMA’s Final Report is aligned with the preferred options of Irish Funds and includes an industry proposal to additionally treat insurance counterparties as regulated entities. ESMA has also amended the haircut requirements in light of commentary received on the appropriateness of the framework.
  • MMF regulatory reporting – ESMA has greatly simplified the reporting template and deleted a number of fields as proposed by Irish Funds and other stakeholders. ESMA has confirmed that the first quarterly reports will need to be sent to NCAs by October/November 2019.
  • Stress testing – ESMA decided to include two different parts in its guidelines on stress testing – the first part follows a principles-based approach and the second part includes common reference stress test scenarios. ESMA plans to do further work on calibrating the parameters of the common reference stress tests and update its guidelines “in a timely enough manner” to enable managers to include these in the regulatory reports. ESMA has amended its guidelines to make aggregation of stress tests optional and not required by ESMA.
  • Credit quality assessment – ESMA has updated its proposals under validation and credit quality criteria in a number of areas in order to take account of feedback received.

Next steps

The technical advice and implementing technical standards (“ITS”) have been submitted to the European Commission for endorsement. ESMA will now start working on guidelines and IT guidance that will accompany the ITS on regulatory reporting. ESMA will also continue work on its stress testing guidelines to develop the calibrations for the common reference stress test scenarios and plans to publish these updated guidelines at the same time that it publishes the detailed guidance on the regulatory reporting.

MMFR will apply from 21 July 2018. Existing MMFs will have until 21 January 2019 to transition to the new regime. Irish Funds is continuing to engage on the implementation and transition process.

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