Jean-Pierre Gomez, Head of Regulatory & Public Affairs Luxembourg, Société Générale Securities Services, will participate to Thursday's FundsEvent and will notably discuss the new regulations that will impact the fund industry. Today, he tells us about the European Commission's plans to change its Money Market Funds regulation.
The European Commission has changed its regulation on Money Market Funds. What was the EC's main objective?
The European Commission wanted to take strong measures further to the 2008 financial crisis, in line with the recommendations of the Financial Stability Board, who has identified money market funds as shadow banking entities.
In the US, one of the biggest money market funds faced the worst difficulties to deal with RUNS, these massive redemption orders coming from investors, who were in a hurry to get their money back. The portfolio manager of this fund had no other choice than to depreciate or downgrade the assets of the fund.
One other argument from the European Commission was to avoid giving the impression to investors that money market funds looked like time deposit and offered the same guarantee in terms of asset protection.
How will this decision impact the fund industry in Luxembourg? What about investors?
Luxembourg funds comply with either UCITS directive or AIFM directive. And those funds are already regulated.
To some extent it is unusual to impose additional layers of regulation to products already well regulated. However, this new regulation reinforces the current one in a way that in case of high market volatility, market stress or market turbulence, there will be these redemption gates and/or liquidity fees to compensate any decrease of assets.
The investors are more protected and at least well aware of the possible consequences of risk when investing in a MMF. But we may have investors and portfolio managers looking at other types of financial products, offering a better return with less constraints. This is especially true in a situation where interest rates are low or even negative.
What is going to change in the months to come?
The Parliament first needs to approve the final text in plenary session, following the agreement obtained on November 14th 2016 between the Council, the Commission and the Parliament.
Once ratified by the Parliament, the fund industry will have more or less two years to comply with the new rules of this money market fund reform.
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Publié le 03 février 2017