Asset Management
Asset Management
by Katie Kelly, Irene Rey and Kyra Brown
Targeted consultation on EU Money Market Fund Regulation
AIFMD/UCITS and ELTIF: AMIC advocacy update
ICMA recently responded to the European Commission’s targeted consultation on the functioning of the Money Market Fund Regulation (MMFR). At a high level, the ICMA response suggested a shift of focus away from money market fund (MMF) structures towards the efficiency and resilience of the underlying market, referring to the initiatives and recommendations in the ICMA White Paper, The European Commercial Paper and Certificates of Deposit Market. The response also highlighted the difficulties with suggested amendments to the MMFR, such as such as the fact that borrowers would lose the benefits of cost savings, diversification and flexibility of funding, access to currencies, and would have to look elsewhere for another investor base if low volatility net asset value funds (LVNAVs) or constant volatility net asset value funds (CNAVs) were no longer available. Loss of LVNAVs or CNAVs could also drive investors to other bank products which may be riskier, less transparent or are outside the EU-regulated financial market.
Under the guidance of the ICMA Asset Management and Investors Council (AMIC) Risk Management Working Group, AMIC drafted a position paper on the European Commission’s (EC) proposal on AIFMD/UCITS and ELTIF reviews and circulated it to key policy makers including the Council of EU and Members of the European Parliament (MEPs). In this position paper, AMIC identified key priority areas and made specific suggestions for policy makers to take into consideration in responding to the European Commission’s report. The AMIC position in response to the European Commission proposal is detailed in a previous QR article.
The response suggested that strengthening LVNAVs’ liquidity requirements or permitting the use of liquidity management tools (LMTs) would ensure they can meet redemptions, maintain the availability of short-term funding for borrowers, and offer a stable net asset value for investors, while also cautioning on the design of LMTs and any mandatory directions as to their use.
On AIFMD, AMIC has since focused its latest comments on new provisions debated in the Council for a leverage cap, limitations in shareholder loans and UCITS reporting requirements. AMIC has begun its engagement with MEPs now that discussions have moved to the European Parliament.
Elsewhere, amid concerns that underlying vulnerabilities within MMFs and threats to financial stability remain after the global pandemic, the Financial Conduct Authority in the UK has released a discussion paper seeking views on how to strengthen the resilience of MMFs, after which it will decide whether to formally consult on one or more MMF reform proposals. ICMA is considering its response to this discussion paper.
Isabel Benjumea MEP, the lead on the AIFMD file in the European Parliament’s Committee on Economic and Monetary Affairs (ECON), published the ECON draft report in May, which included a separate set of additional amendments to AIFMD. AMIC welcomed this report, which included additional proposals to the European Commission review, such as (i) extending the definition of professional investor, (ii) extending the scope of permitted activities for AIFMs to include benchmark administration and credit-servicing as “top-up permissions”, and (iii) permitting AIFMs to carry out any other “ancillary service” which is not a MiFID II investment service.
Contacts: Katie Kelly katie.kelly@icmagroup.org
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AMIC organised a number of bilateral meetings with representatives from EU Ministries of Finance and with the participation of AMIC members to discuss the AIFMD, UCITS and ELTIF reviews. Representatives of the French Treasury were also invited to participate in the March AMIC ExCom meeting to share their perspective on the files.
