Brussels, 20/11/2014 (Agence Europe) - Movement on the proposed regulation aiming to make the monetary funds more solid (money market fund) has been awaited for more than a year. The EP and the Council have set to work and distanced themselves a certain amount from the Commission's proposal, which aimed to oblige CNAV money market funds, which offer consistent remuneration despite market fluctuations, to hold liquidity buffers of 3% of the total assets.
Neena Gill (S&D, UK), EP rapporteur on this dossier, has proposed looking at this debate from a new angle. Stressing that the EU is faced with a significant investment and funding deficit and that the Commission has set itself the objective of creating a European capital markets union, she argues that the monetary funds have a vital role to play in this context.
Taking inspiration from the reform of the sector in the United States, Neena Gill has proposed a number of amendments to the Commission's proposal. She believes that bringing in a liquidity buffer is not the right approach and argues in favour of establishing a new category of CNAV funds: 'EU government CNAV MMF funds', CNAV funds which would invest the majority of their assets in the public debt of the countries of the EU. There would be portfolio diversification obligations, with the possibility of investing no more than 5% of the assets of the CNAV fund in the debt of a single country. This point is expected to raise criticism, the rapporteur anticipates.
Between now and 2020, these funds should have 80% of their assets invested in European public debt. The capital buffer would then be calculated on the basis of the risk profile and applied proportionately to the part not invested in public debt.
In order to ensure the stability of the portfolio diversification obligations sector during the transition period, Gill has proposed additional measures, the first one of which relates to the sponsor.
The involvement of the sponsor would have to be notified in advance to the Commission and the ESMA and any violation of this rule would lose the fund its authorisation. Transparency requirements would also be set in place, alongside quarterly stress tests.
The rapporteur also argues that a category of retail investors should be recognised (charities, universities, public sector bodies, etc). These will be authorised to continue to use CNAV funds, on the condition that liquidity fees and redemption gates be applied in times of stress. The Commission would analyse the macro-economic impact of this exception within three years of the regulation's entry into force.
Lastly, the rapporteur is of the opinion that the role of the ESMA should be extended to supervise the sector. A new department within the ESMA, funded through the sector's contributions, should be set in place, she argues. She plans to present her report in committee on 2 December and hopes for a vote in January.
For its part, the Italian Presidency of the Council of the EU, in a working document dated 17 November, deleted articles 30 to 34 on the 3% liquidity buffer.
Instead, it refers to requirements for small CNAV funds and retail CNAV funds: assets with weekly maturity should represent 30% of the fund's assets and should they fall below that threshold, strict procedures will be set in place, such as liquidity fees of up to 2% on buy-backs, the suspension of buy-backs for a period of up to 15 days or redemption gates. Should they fall below 20%, similar but stricter measures would be in place. At the level of the member states, differences of opinion have been observed: France and Germany are in favour of tougher rules to govern the sector, whilst Luxembourg and Ireland, big issuers of monetary funds, are in the opposite corner. (EL)