Brussels, 13/06/2016 (Agence Europe) - This Friday 17 June, the EU finance ministers are expected to reach a general approach on the proposed regulation to create a European framework for money market funds. The Commission hopes that inter-institutional negotiations with the EP will be able to start as soon as possible. Its proposal dates back to September 2014 and the Parliament has been ready for the talks since April 2015 (see EUROPE 11305).
Like the EP, the Council hopes to keep certain types of funds with a constant net asset value or 'CNAV', which are common in Ireland, Luxembourg and the United States. These funds tend to need the support of their sponsor to stabilise redemption at par. The Commission therefore wanted to require them to establish a reserve of own funds (3% of total assets). Neither the EP nor the Council would agree to this reserve, instead preferring liquidity fees or redemption gates to be applied in times of stress.
The Council therefore wants to keep CNAVs which invest at least 99.5% of their assets in public securities. The EP's position is very close to this, save for the fact that the MEPs want 80% of the CNAVs' assets to be invested in public securities of EU countries.
The Council's approach will also keep retail CNAVs for legal persons based outside the EU. The Council also brings in the creation of a new type of money market fund, taking inspiration from the EP's stance: low volatility net asset value money market funds, or 'LVNAVs'. The difference in the EP's approach is that the MEPs want a clause making it compulsory for LVNAVs to be converted into VNAVs (variable net asset value) funds after five years. This 'sunset clause' will be one of the key issues in the forthcoming inter-institutional negotiations, the EP's rapporteur on this dossier, Neena Gill (S&D), told the Financial Times, on Friday 10 June.
At the Council, the States clashed over the question of liquidity requirements. At the end of April, Luxembourg, the UK and Ireland broke the procedure of silence on the sixth draft compromise of the Dutch Presidency of the Council. In a joint document they drafted in May, of which EUROPE has had sight, the three delegations argue that requirement for LVNAVs and CNAVs to hold 30% of assets with a maximum maturity of one week (compared to 20% in the Commission's proposal) was too restrictive. Discussions on liquidity did not focus on whether public security is “should count towards the calculation of the threshold”, the three delegations write, calling for this to be the case. France and Germany responded with their own working document, which argued that the three delegations' request “would change the delicate balance of the current compromise proposal” and would have “concrete and far-reaching consequences in terms of financial stability”. The final text, dated 10 June 2016, keeps in a weekly liquidity requirement of 30% for CNAVs and LVNAVs (15% for VNAVs), but increases the flexibility: 15% may be made up of public securities under different conditions.
The Dutch Presidency of the Council has also made a few changes in terms of diversifying the portfolio of the money market funds. The upper limit for investments in money market instruments issued by a single entity will be 10% (5% in the initial proposal). (Original version in French by Elodie Lamer)