EU Money Market Fund Regulation gets final approval after almost 4 years of negotiation – Hayes
Brian Hayes MEP for Dublin and lead negotiator for the EPP on the EU’s Money Market Funds (MMF) Regulation today (Wednesday) welcomed the European Parliament’s final approval of the Regulation after almost four years of intense negotiations.
“The MMF Regulation has been one of the most contentious pieces of EU financial services legislation in recent years. For Ireland, the stakes couldn’t have been higher. We have over €400 billion worth of MMFs domiciled in Ireland, a crucial part of our funds industry. The Commission’s original proposal would have been disastrous, effectively banning the type of MMFs that operate in Ireland, through the imposition of a 3% capital buffer requirement.
“After intense and lengthy negotiations in both the European Parliament and the Council, we have found a balance that works for the whole MMF industry in Europe. By creating two new types of MMFs, we have allowed the structure favoured by Irish MMFs to continue, albeit with more transparency and security for the financial system.
“In the EU, there are currently two types of MMFs – Constant Net Asset Value funds (CNAV) which are offered in Ireland and Luxembourg and Variable Net Asset Value Funds (VNAV) which are offered in France.
“Throughout the negotiations, working with Irish diplomats in Brussels, we have managed to convince European partners that CNAV MMFs are safe and stable products that have never caused systemic problems to Europe’s financial system.
“In Ireland, we have a thriving funds industry but unfortunately this has often been under threat by the EU’s heavy-handed fund regulation agenda. We cannot let large Member States set the agenda on key financial services files that exclusively suit their own interests The outcome of the MMF Regulation shows that small Member States can really have a big influence on EU legislation. Due to significant Irish efforts in the European Council and the Parliament, we have managed to defend Irish interests successfully.
“MMFs are vital for the financing of businesses, charities, pension funds and governments. They are a vehicle for institutions to warehouse cash on a short-term basis while also allowing easy access to funds. With new capital rules for banks, it is becoming more and more difficult for businesses to rely on bank deposits as a way of managing short term cash flow.
“What is most important in the final agreement is that both sides of the Money Market Funds industry – CNAV and VNAV – will continue into the future, albeit under stricter and safer conditions.
“The final agreement has replaced current CNAV funds with two new types of funds – Public debt CNAVs and Low Volatility NAV funds. Additional safeguards such as strict daily and weekly liquidity requirements, diversification limits and escalation procedures will now be applied to these funds to ensure that they can cope with market shocks and potential run risk.”