Money Market Funds (MMFs)
Money Market Funds (MMFs) form a large and important sector of the European and global investment fund landscape. They perform an important role for many different types of investors (corporate treasuries, government bodies, not-for-proﬁt organisations, and retail investors) as a cash management and liquidity tool. Ireland is the premier location in Europe for establishing and servicing MMFs.
MMFs can be established in Ireland as either UCITS or AIFs, although, in practice the vast majority of MMFs established in Ireland are UCITS funds.
The regulatory regime for MMFs is currently undergoing signiﬁcant change due to the pending implementation of the EU Money Market Fund Regulation (MMFR). MMFR was was published in the EU’s Official Journal on Friday, 30 June and shall apply from 21 July 2018. Existing MMFs benefit from an 18 month transitional period and are required to comply by 21 January 2019.
Under the final agreement reached on the MMFR, MMFs may be established as either:
- a Public Debt CNAV MMF;
- a Low Volatility NAV (LVNAV) MMF; or
- a variable NAV (VNAV) MMF.
The Public Debt CNAV MMF will value assets under the amortised cost accounting methodology and must invest 99.5% of its assets in government backed securities.
The LVNAV is permitted to use amortised cost accounting to value assets that have a residual maturity up to 75 days, while other assets must be valued at mark-to-market/mark-to-model. The LVNAV may display a stable share price per unit/share as long as this does not deviate by more than 20 bps from the price per unit/share as calculated under the mark-to-market/mark-to-model methodology.
MMFR also contains new requirements in relation to:
- eligible assets
- portfolio diversification
- credit quality assessment
- risk management
- an escalation process for the application of liquidity fees and gating mechanisms in the case of the Public Debt CNAV and LVNAV MMF
- external support
- disclosures and regulatory reporting