The following is a reprint from our September MFI "profile".... This month, Money Fund Intelligence interviewed Susan Hindle Barone, Secretary General of IMMFA, the London-based Institutional Money Market Funds Association. IMMFA is "the trade association which represents the European triple-A rated constant net asset value (CNAV, both distributing and accumulating) money market fund industry," and Barone has been among those leading the fight to prevent drastic regulatory change from critically injuring the money fund business in Europe. Our Q&A follows. (Note: Hindle Barone will also be speaking Monday morning at Crane's European Money Fund Symposium, which takes place today and tomorrow in London at the Hilton London Tower Bridge. For those attending, we hope you have a good show and welcome to London!)
Q: Tell us about the history of IMMFA? How long have you been involved with money funds? IMMFA was set up in 2000. The original thought behind it was that some standardization would be good for the product in the sense that if investors were more familiar with what money funds were, what they represent, then it would be good for the product overall. A lot of the people that were involved then are involved today. Some of the original members are people like Peter Knight and David Hynes; Mark Hannam was involved back then.... So was Jonathan [Curry], so it's a good group of people. I've been working for IMMFA since June of 2012.
Q: Did they bring you in to provide more structure? They originally shared resources with the IMA [Investment Management Association] and they felt they wanted some dedicated resources. The fact that I have a reasonably technical knowledge of the products as well, given the debates we've been going through, was very helpful. I think in normal circumstances, there wouldn't be as much regulation or technical content as there is at the moment. The whole time I've been involved, regulations have been virtually all we've thought about, and have dictated, certainly, what I've done.
Q: Back when IMMFA was formed, there weren't any European MMF regulations, right? No. And even now, the European regulation specifically for money market funds is relatively light. There are the UCITS rules, but they cover a wide range of funds. Then there are the ESMA MMF Guidelines, which were published in 2010. These cover the IMMFA style funds, designated as "Short Term Money Market Funds," but also the more generic "Money Market Funds," which wouldn't meet the IMMFA Code of Practice.
Q: What's new with IMMFA? I joined in the summer of 2012 and then my colleague Jill [Moffatt] joined in January 2013. It's been good that we've got more people around. We put out a newsletter and have a completely overhauled website (www.immfa.org). Certainly, from my own perspective, we have better contacts than we had. For example, we have a good dialogue with a variety of regulators and politicians and with other associations such as the Irish Funds Industry Association and the ICI. So developing the contacts has been very helpful for me to understand how to engage and really get things done.
We have been hugely focused on the regulatory debate. IMMFA only represents CNAV triple-A rated funds, yet both those features are ones which are opposed in the European Commission's proposal. We're very conscious of that. We've also been thinking about what does IMMFA represent? Does it represent the short term fund industry? Does it represent the funds that are CNAV? Does it represent only Europe? We've been considering lots of different options. It's definitely still evolving.... We can't really come to any conclusions until we know what the regulations are going to look like.
Q: What's the current status of regulations in Europe? First, about the [delay, or lack of action in the previous Parliament on a proposal for a buffer or floating NAV for CNAV funds] -- it was good and bad. It was good in the sense that we felt that we got some traction. A lot of the things that we discussed are very common sense arguments. They started to get some traction with people who may have been influenced in the past by the sound bites or the arguments they've heard somewhere else -- not necessarily appreciating the fundamental differences or implications of what we were trying to do. That's the good news. The bad news is when you change Parliament, when you change your MEPs. We've lost a lot of people who had become knowledgeable on the subject matter. They may not have agreed with us, but at least they understood the arguments -- and we've lost many of those people. So we'll be starting from scratch with a lot of people who may not be familiar with what money funds are, what they do, and why people value them.
The focus right now is on the Council of Ministers, considering how they think the Commission documents should be amended to reflect how they think money funds should be governed. We're focusing on it in three ways -- the Commission, the Council of Ministers, and the Parliament. All three are still involved. My sense is there's definitely a will to get this piece of work completed. Nobody wants to rush investors into something they don't like. But at the same time, the money fund debate has been going on a long time, so I think there is definitely a will politically. I won't be surprised if we have a clearer picture of what the new money market fund regulation might look like by the end of the year.
Q: How might SEC reforms influence the decision? Now that the SEC has decided to have a VNAV solution for prime institutional [money funds], the European objection to being harmonized may be less. Europe has got a different situation. The SEC's changes only impact roughly 1/3 of AUM of money funds [in the U.S.]. The existing proposal from the European Commission, to have a 3 percent capital buffer, would effectively kill all CNAV. I think the Europeans recognize that there is still a CNAV option in the States. I think there is a lot of negotiating to be done this autumn.
Q: Any other challenges that members are facing? Supply? Fee waivers? Definitely. I'd say the interest rate environment is probably number one. There is certainly a shortage of supply either because many corporates are cash rich and therefore not issuing debt, or because the overall migration of the ratings. If you imagine all the debt instruments that would have qualified to go into money market funds say 10 years ago, there's been an overall reduction across the board of the credit rating of a great deal of that debt. Businesses are running high levels of cash so the need for debt is less. Banks have been encouraged to have less short-term debt, so they are issuing longer, which may or may not fit into the parameters for a money fund. So yes, the supply of assets is tough.... If the ECB lowers rates further, it becomes increasingly difficult to generate a positive yield.
Q: Any word on regulations surrounding triple-A ratings? Technically, the European Commission proposal still recommends a ban on fund level ratings. However, as it was debated in Parliament, many MEPs agreed that such a ban may not be helpful. The ESMA guidelines were updated last Friday [August 22] to reflect the fact that the mechanistic reference to ratings should be reduced. But as far as the new Regulation is concerned, we're hoping that good sense will prevail. I think people will realize a ban on fund level ratings wouldn't be helpful and it's just too hard for the investors.
Q: What's on your immediate agenda going forward? We're going to be really busy for the next 6 months. Personally, I really get the sense that this is the run-up to deciding what it's going to look like. I see us being very busy on regulation between now and, let's say, the end of the year. We're also looking at a couple of projects that are aligned with reforming IMMFA; being ready to adapt to what the new situation looks like. Whichever way we go with regulation, we want to be clear about what IMMFA should represent and where we should be positioned. That's over the next 6 months to a year. In terms of setting direction, it's quite tough. I'm very conscious that it has to be what the members want. Even though there have been some really tough issues for people to think about, we've managed to be fairly unanimous on most of the major points. I think there will be an interesting period of investor education once we know what the funds are going to look like because we know people will come out with products that meet the new rules.
