Money market funds in Europe, which had been scheduled to submit to new regulations starting January 21, have been given a 2-month extension by Irish and Luxembourg fund regulators. A press release entitled, "Statement on the treatment of share cancellation under EU Regulation" explains, "The Central Bank of Ireland ('Central Bank') and the Commission de Surveillance du Secteur Financier ('CSSF') are issuing this joint statement in the interests of supporting the orderly implementation of the Money Market Funds Regulation (MMF Regulation) by converging their respective supervisory approaches to share cancellation and advising the market accordingly." (See also, the Financial Times article, "Fund groups gain reprieve from EU money market rules.")
It continues, "Article 44 of the MMF Regulation provides that money market funds existing prior to 21 July 2018 shall submit an application for authorisation to its competent authority by 21 January 2019 together with all documents and evidence necessary to demonstrate compliance with the MMF Regulation. This application should include details of arrangements for the cessation of the use of the share cancellation mechanism in accordance with the MMF Regulation and the opinion of the European Commission expressed in its letters dated January 2018 and October 2018 that share cancellation is not compatible with the MMF Regulation."
The update adds, "Article 44 of the MMF Regulation also provides that no later than 21 March 2019 (being the date falling 2 months after 21 January 2019), the Central Bank or CSSF (as applicable) shall assess whether or not each fund is compliant with the MMF Regulation and shall issue a decision and notify it immediately to the fund."
It says, "With that in mind, and without prejudice to the functions and powers of the Central Bank and CSSF respectively, with effect from 21 January 2019, the Central Bank and the CSSF will as part of their supervisory strategy for the enforcement of the MMF Regulation, require relevant funds to: provide a copy of this notice to investors and notify such investors that they are invested in a fund which is the subject of this notice; ensure all necessary and appropriate facilities are available for investors or prospective investors to get such information as they may require from the fund with respect to the subject matter of this notice; take such steps which in the opinion of the fund are appropriate to avoid a disorderly sale of fund assets; and confirm to the Central Bank or CSSF (as applicable) in writing by no later than 21 March 2019 that all use of share cancellation mechanisms has ceased."
BlackRock released a letter to European fund investors which states, "We previously communicated our intention to migrate all our funds to the new post-reform structures on Monday 14 January 2019. At that time, we were awaiting final approval of the ICS Funds' prospectus by the Central Bank of Ireland (CBI), which was contingent upon their clarification of the use of the 'Reverse Distribution Mechanism' (RDM) for our Euro funds."
They write, "On 24 December 2018, the CBI provided clarity to the industry stating that they are not able to approve RDM in MMF prospectuses for post-reform use. Instead, they have granted a two-month period (to 21 March 2019) for resubmission of new documentation, including fund prospectuses, without the inclusion of RDM language."
BlackRock adds, "Accordingly, we have divided the sub-funds of the ICS fund range into two different implementation timelines: 1. Our existing US Dollar and Sterling ICS Funds, along with our Institutional Euro Assets Liquidity Fund and Institutional Euro Ultra Short Bond Fund will migrate as planned, effective 14 January 2019. 2. For our Institutional Euro Liquidity Fund and Institutional Euro Government Liquidity Fund we are now enacting our contingency plan to amend the dividend policy of the distributing T+0 share classes within these funds to act as accumulating T+0 share classes. We plan to utilise the two-month extension granted by the CBI to provide shareholders of the impacted funds as much time as possible to prepare for the change from stable to non-stable net asset value (NAV) shares."
They conclude, "Therefore, our new planned migration date for our Institutional Euro Government and Institutional Euro Liquidity Funds is March 2019 (we anticipate 18 March but will confirm this in due course). Until this March migration date, the Institutional Euro Liquidity Fund and the Institutional Euro Government Liquidity Fund will continue to operate as CNAV Funds (not yet authorised under the European Money Market Fund Reform), using RDM for those share classes that do so today."
HSBC Global Asset Management also commented on the "European Money Market Fund Reform changes earlier this week. They wrote, "New rules for Money Market Funds in Europe will apply from January 2019. HSBC has been actively keeping clients informed of the details of the new rules, and the changes they mean for our funds in Europe."
Their update says, "A key part of the new rules is the creation of a 'Low Volatility' Net Asset Value (LVNAV) fund, which we believe will be welcomed by most investors, in part due to the features which are similar to existing Constant Net Asset Value (CNAV) prime funds that many investors use today. By 21 March 2019, HSBC Global Liquidity Funds plc expects to transition its full spectrum of CNAV Prime Funds denominated in USD, EUR, GBP, CAD and AUD to the new LVNAV Prime Funds. The HSBC US Treasury Liquidity Fund will remain CNAV as a Public Debt Fund."
Finally, a footnote explains, "On 24 December 2018 the Central Bank of Ireland wrote to all fund providers requesting them to submit their plan outlining how they will be fully compliant with the new regulation by no later than 21 March 2019. We will provide investors with further updates as those plans are finalised with the Central Bank of Ireland, including the removal of the Reverse Distribution Mechanism for the Euro Liquidity Fund specifically. As a result the HSBC Global Liquidity Funds conversion will now take place by 21 March 2019 at the latest, in line with the new regulatory guidance."
For more on European Reforms, see the following Crane Data News stories: "BNY Mellon Converts for European MF Reforms; USD Assets Rise in 2018" (1/7/19); "Schwab USD LA Goes Govt Ahead of European Reforms; Weekly Holdings" (1/3/19); "Money Fund Average Breaks 2.0%, Yields Rise; BNP Splits European MMFs" (12/27/18); "Money Fund Assets Skyrocket, Break $3 Trillion; UBS on European MMFR" (12/14/18); "JPMorgan Now Live With European Money Fund Reforms; VNAVs SnP AAA" (12/4/18); and "Cash Will Be King in '19 Says GS; BlackRock Update; Europe Rejects RDM" (11/26/18).
