FCA Posts U.K. MMF Consultation
The Financial Conduct Authority (FCA), which regulates financial markets in the U.K., published a consultation paper entitled, "Updating the regime for Money Market Funds." Their statement explains, "We are proposing 2 significant changes to current MMF regulation that we assess as particularly important in reducing the vulnerability of MMFs. Both aim to increase the usable liquidity of MMFs, so that in severe but plausible market stresses, MMFs do not reach a point at which they are unable to meet continuing investor demands for their money back without fire-selling assets. A significant increase in the minimum proportion of highly liquid assets that all MMF types have to hold. This will ensure that MMFs have enough liquid assets to withstand large amounts of withdrawals over a short period in severe but plausible market stresses. This will significantly reduce the first-mover advantage in MMFs explained above." They also propose, "The removal of an existing regulatory requirement for important types of MMF which 'links' the levels of liquid assets in those MMFs with the need for the MMF manager to impose or consider imposing tools that, if used, would reduce the ability of investors to get their money back without unanticipated delays or losses. This proposed policy change is known as 'delinking' and works to reduce the additional first-mover advantage the 'links' can cause for these types of MMF as their liquid asset levels decrease. We are proposing a series of further changes that will further enhance MMF resilience, as set out in the CP. Overall, all of our proposals prioritise strengthening the existing regulatory regime for MMFs while maintaining the broad current MMF operating model. In addition to increased financial stability, these measures also have the potential to strengthen the long-term competitiveness of the UK MMF sector, by increasing investor confidence in UK domiciled funds." They add, "We are also consulting to bring MMF rules that were previously contained in retained EU law into our Handbook.... Please send us your comments by 8 March 2024 via our response form or by email." Watch for coverage of the full paper in coming days.
