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Irish Funds response to ESMA Consultation on the Money Market Fund Regulation

8 August 2017

Irish Funds has responded to ESMA’s Consultation Paper on draft technical advice, implementing technical standards and guidelines under the MMF Regulation.

The Irish Funds response addresses a number of aspects, including:

  • ESMA’s position on the destruction of shares – Irish Funds notes that the well-established practice of reverse distribution in a negative yield environment is entirely consistent with the MMF Regulation.
  • The liquidity and credit quality requirements for assets received under certain types of reverse repurchase agreements – Irish Funds highlights the need to treat insurance and pension fund counterparties as regulated entities and the need to take a more bespoke approach to the haircut requirements for such reverse repos with unregulated counterparties.
  • MMF regulatory reporting – Irish Funds highlights the expansive nature of the reporting template and proposes that ESMA keep to information only requested under the Level 1 text and delete items requested that are unnecessary or of less relevance for MMFs.
  • Stress testing – Irish Funds considers that aggregated reporting of stress testing results would not serve any meaningful purpose and could return false positives in relation to perceived risks.
  • Credit quality assessment – Irish Funds advocates against a highly prescriptive process that could lead to an overly mechanistic approach that could be counterproductive by fostering a herd mentality in the performance of credit assessment.

Following consideration of the responses, ESMA will finalise i) its technical advice to the Commission, ii) the regulatory reporting template and iii) the guidelines on stress testing. It is expected that ESMA will complete this work by Q3 2017. The Commission will then need to adopt delegated acts on the MMF Regulation.

MMFR will apply from 21 July 2018. Existing MMFs will have until 21 January 2019 to transition to the new regime. Industry is currently working with the Central Bank of Ireland to devise an appropriate transition process.

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