Brussels, 29/04/2015 (Agence Europe) - On 29 April, the European Parliament endorsed a negotiating position on the draft EU regulation on European rules for money market funds. The report by Neena Gill (S&D, United Kingdom) got a bigger majority (467 to 155, with 51 abstentions) than in the vote at the EP's Economic Affairs Committee.
The report provides for the creation of three new types of CNAV (constant net asset value funds), namely Public debt CNAVs, CNAVs that invest most of their asset (99.5%) in public debt, retail CNAV for charities, public authorities or foundations, and, finally, under pressure from the ALDE Group, Low volatility net asset value funds (LVNAV). A clause has been added for LVNAVs calling for a sunset clause after five years, to turn them into VNAVs (variable net asset value funds) (see EUROPE 11263). A year ahead of the expiry of this authorisation, the European Commission will examine whether financial stability and systemic risk are being dealt with by LVNAVs. It will have to unveil draft legislation in the light of its conclusions, including the option of indefinite authorisation of such products. The problem with CNAVs is that they provide constant remuneration despite the fluctuations in the market.
CNAV and VNAV each account for half the money market funds, explained Gill after the vote. She regretted that the sunset clause is a divisive issue at the EP. The ECR Group wanted a separate vote on this clause in order to take it out of the final compromise. British ECR MEP Kay Swinburne said during the debate the day before that clause weakened the compromise. Roberto Gualtieri (S&D, Italy) said that the question was a red line for his group, while the Greens/EFA lodged amendments to extend the clause to three types of CNAV. Commissioner Jonathan Hill said that the European Commission's initial proposal did not foresee the gradual scrapping of CNAV. He added that LVNAVs were a good basis for the negotiations with the Council, which is also exploring this approach. He said there was a renewed desire among the member states to return to the negotiating table.
After the vote, Eva Joy (Greens/EFA, France) said the Financial Stability Board and the European Systemic Risk Committee recommended the phasing out of CNAVs because they generate and encourage systemic risk. Neena Gill accused the Left in Europe of adopting a fundamentalist approach. She said she had taken their arguments into account when drawing up the final compromise, that the Greens/EFA and GUE/NGL had rejected at the financial affairs committee: “I am deeply disappointed by the position taken by the Greens and GUE, despite us taking on board many of their concerns, they appear to still be taking a fundamentalist point of view; it is their position or nothing. We have taken sufficient action against the vulnerabilities of MMFs through stricter liquidity, diversification requirements, a ban on sponsor support and a strong sunset clause. It is important that we get this regulation on the statute books, sooner rather later”.
Gill stressed the main change on the Commission's proposal: the idea of a liquidity buffer of 3% of the CNAV's total assets was scrapped, the report foreseeing instead liquidity fees and redemption gates to be applied in times of stress, similar to the reforms introduced in the United States. The Parliament rejected the Greens/EFA's amendment to limit the pay of money market fund managers in the banking sector and an amendment banning money market funds active in the EU from operating in tax havens, regretted Joly. Shadow rapporteur for the ALDE Group, Petr Jezek (of the Czech Republic) commented: “Of course, in the whole text of the compromise there are aspects I am not entirely happy with, but this will apply to everyone in a regulation as complex and divisive as this”. (Elodie Lamer)