As Crane Data prepares for its 4th annual European Money Fund Symposium, which will take place Sept. 20-21 in London, a couple articles discussing pending European Money Fund Regulations have recently been published. PWC's new Asset & Wealth Management Newsletter briefly summarizes the path of reforms in Europe, while Pensions & Investments features an article on why the reaction to European regulatory changes should differ from the U.S. We review these below, and also mention an ignites article on money funds and customer service. (For more, see also our June 16 News, "European Money Fund Reform Deal Poised to Pass; CNAVs to Be LVNAVs.")
PWC Ireland's latest "Asset & Wealth Management Newsletter contains a brief, "Money Market Funds (MMF) Updates." It says, "On 15 June 2016, the Permanent Representatives Committee (COREPER) of the Council reached agreement on the Council's negotiating mandate on the reform of MMFs, paving the way for trilogies with the EP."
It explains, "On 10 May 2016, the Council of the EU published a further Presidency compromise text of the proposed Regulation on MMFs. Amendments particularly relate to the holding of ancillary liquid assets and the use of asset-backed commercial papers. On 14 April 2016, the Council published a presidency compromise on the proposal for a Regulation on MMF. The Council of the EU released an additional Presidency compromise text of the proposed Regulation on MMFs with amendments, on 10 May 2016."
PWC adds, "On 16 February 2016, ESMA issued a follow-up peer review into the compliance of National Competent Authorities (NCAs) with guidelines regarding MMF, which provides an update on the findings of the first peer review and details the result of this second assessment by peers. It highlights the 8 NCAs that were not compliant with the guidelines in 2013 at the time of the initial review. The review period is from 1 May 2014 to 1 May 2015. ESMA has found that, 7 of the 8 jurisdictions are now compliant or are about to with the guidelines."
Pensions & Investments writes "European money market reform on different path: New regs not expected to spark huge outflows like those seen in U.S.." It comments, "Impending reforms to European money market fund regulations will likely spare prime funds from the exodus of assets that the U.S. market has seen following SEC reforms, sources said."
P&I says, "Investors have one more month before the changes in the U.S. fully come into force. Those changes aim to reduce the risk of investor runs and require institutional prime funds to transact at a fluctuating net asset value, rather than the current constant net asset value. But U.S. investment in prime money market funds has fallen by about $338 billion this year through July to $1.23 trillion, according to Securities and Exchange Commission data. Instead, some $339 billion has flown into government money market funds, which remain trading at constant NAV. Observers expect Europe's incoming reforms will avoid this drain, and critically important, maintain the funds' role in financing the real economy."
The article comments, "Dennis Gepp, senior vice president, managing director and chief investment officer, cash, at Federated Investors (UK) LLP based in London, is "certain" the money market fund reform and its effects will take a very different shape in Europe than in the U.S. "One consequence (of the U.S. reform) that Europe would like to avoid is to have cash flow out of the prime money market funds into government funds," Mr. Gepp said."
It continues, "Rudolf Siebel, managing director at German Investment Funds Association BVI and chair of European Fund and Asset Management Association money market fund working group, said the EU was under pressure from both Financial Stability Board and International Organization of Securities Commissions to reform these systemically risky instruments."
P&I explains, "While variable NAV funds should survive if the current proposal from the EC is enforced, there is no doubt that constant NAV funds -- in their new guise as low-volatility NAVs -- would in fact survive in parallel.... While work remains to be done on the reforms, money managers already are looking at the potential impact."
It comments, "[Goldman Sachs' Kathleen] Hughes said the reform proposals are positive for the money market fund industry in Europe for a number of reasons. "The LVNAV model has addressed the need for greater transparency, higher liquidity and for a different type of product due to the fragmentation of investors in Europe and the breadth of jurisdictions they operate in," she said."
Finally, the article adds, "Mr. Siebel said a few elements of the proposed regulation are unworkable and will be addressed by the trialogue -- the European Parliament, European Council and European Commission.... "At present the government CNAVs should not be limited to EU public debt because U.S. Treasury money market funds will essentially become prohibited," Mr. Siebel said. Money managers won't have long to find out how they will be affected. Mr. Gepp and Mr. Siebel both expect the new regulation to be finalized this year. "There is a lot of political pressure to close the file," Mr. Siebel said."
In other news, ignites writes "With Money Funds in Major Flux, Firms Seek Customer-Service Edge". The piece comments, "While customer service has always been part of the broader package that money market fund sponsors offer investors, it has become more critical amid the major changes to sponsors' product lines and operations set into motion by the SEC's July 2014 rules. In the past two years, firms have overhauled their money fund offerings by rolling out new products, converting prime funds to government funds and axing still others."
They add, "The challenge for firms has been to communicate all of these changes to investors, with the dual goal of retaining existing clients and gaining new ones at a time of great flux for the industry. Money funds have always been seen as a commoditized business, so it's been difficult for firms to differentiate themselves, says Peter Crane, CEO of Crane Data. Normally they've done that through yield, assets under management and other features, "but given the shifting landscape ... I'm sure hand-holding and guidance and just being closer to the customers is something that is of import," he says." (See our Aug. 31 News, "PIMCO Liquidating MMF; BlackRock Client Survey; Citi, Fitch on FAQs, CP.")
