The website Lexology posted an update entitled, "UK Money Market Funds Regulations 2018 Published," which was written by law firm Katten Muchin Rosenman LLP and which discusses how the U.K. will implement European Money Fund Reforms. They write, "On June 11, the Money Market Funds Regulations 2018 (MMFR) were published and set to go into effect on July 21. The MMFR relates to the EU Regulation on Money Market Funds (EU MMF Regulation), and ensures the UK Financial Conduct Authority (FCA) can authorize money market funds (MMFs) and enforce the MMFR from the day that the EU MMF Regulation goes into effect."(See also our May 25 News, "Euromoney Cites Cross, Goldthwait on European Reforms.")

Katten Muchin Rosenman's Neil Robson tell us, "The MMFR amends the Financial Services and Markets Act 2000 (FSMA) to allow the FCA to authorize funds as MMFs, as well as to exercise regulatory powers over MMFs. It further amends FSMA to grant the FCA powers to authorize, and intervene in respect of, unit trusts and contractual schemes (both being subsets of MMFs)." (See the full, indecipherable, Money Market Funds Regulation here.)

The brief continues, "The MMFR also introduces changes to the following delegated legislation: Open-Ended Investment Companies Regulations 2001 to permit open-ended investment companies (OEICs) to apply to become MMFs, or those applying to be OEICs to simultaneously apply to be authorized as an MMF; Alternative Investment Fund Managers Regulations 2013 to enable the FCA to prescribe the application process for an alternative investment fund (AIF) to be authorized as an MMF, the procedure for refusal of an application and the process if the FCA decides to revoke authorization of an AIF which is an MMF; and, Financial Services and Markets Act 2000 (Qualifying EU Provisions) Order 2013 to enable the FCA to investigate and bring enforcement action against funds directly for breach of the EU MMF Regulation."

An accompanying "Explanatory Memorandum" says, "This explanatory memorandum has been prepared by HM Treasury and is laid before Parliament by Command of Her Majesty.... The instrument is being made in relation to Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds."

It continues, "The EU MMF Regulation will apply in the UK from 21 July 2018. Although the Regulation is directly applicable, HM Treasury must make legislative changes to ensure that the Financial Conduct Authority ("FCA") is able to authorise money market funds ("MMFs") and enforce the provisions of the Regulation from the day that the EU MMF Regulation comes into force."

On "Policy background, the piece comments, "MMFs are fund vehicles that invest in highly liquid, short-term debt instruments (e.g. government bonds and corporate debt). Through their investments, MMFs provide a short-term, stable cash management function to financial institutions, corporations and local governments; this allows investors to spread their credit risk and exposure, rather than relying upon bank deposits."

It adds, "These Regulations seek to provide the FCA with the powers to authorise authorized unit trusts, authorised contractual schemes, open-ended investment companies and alternative investment funds as MMFs. It also provides the FCA with the powers to enforce the provisions of the Regulation and levy fees for the purpose of supervising MMFs."

While we're unclear what impact "Brexit" will have on pending money fund reforms in Europe, it appears that regulators in the U.K. are proceeding as if it's business as usual. The Financial Times addresses the potential for a split between funds in European and those in the U.K. in the article, "Brexit contingencies: asset managers put plans into action." They write, "Asset managers are losing patience with politicians over the slow pace of Brexit negotiations, with several deciding it is better to assume the worst and fire the starting gun on their contingency plans."

In other news, a press release entitled, "Moody's assigns Aaa-mf rating to Pacific Capital U.S. Government Fund" tells us, "Moody's Investors Service ... assigned a Aaa-mf rating to Bank of Hawaii's Pacific Capital U.S. Government Money Market Fund. The newly established money market fund seeks to maintain a constant net asset value of $1.00 per share while employing an investment strategy to maximize current income consistent with the preservation of capital and liquidity."

They explain, "The Aaa-mf rating reflects our view of the Fund's very strong ability to meet the dual objectives of preserving capital and providing liquidity. This view is supported by the Fund's high scores across key rating factors including asset quality and liquidity. We expect the Fund to maintain its high credit quality by investing primarily in US government and agency obligations, US Treasury securities, obligations issued by US government-sponsored entities, and repurchase agreements backed by the same."

Moody's adds, "The Fund also scores high with respect to market risk exposure. Under our net asset value stress test, the model portfolio provided by Fund's adviser, exhibited minimal exposure to market risk. The Asset Management Group of Bank of Hawaii, is the registered investment adviser of the Fund. At 30 April 2018, the Asset Management Group had approximately $1.3 billion in assets under management."

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