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Money Market Fund Regulation Update

AUTHOR(S): Tara Doyle, Michael Jackson, Dualta Counihan, Anne-Marie Bohan, Shay Lydon, Liam Collins, Philip Lovegrove, Elizabeth Grace, Oisin McClenaghan, Michelle Ridge, Barry O’Connor, Donal O’Byrne
PRACTICE AREA GROUP: Asset Management and Investment Funds
DATE: 23.07.2018

Applications to the Central Bank of Ireland

The Central Bank of Ireland (“Central Bank”) has published the application forms to be completed when seeking authorisation as a money market fund (“MMF”) under the new EU Money Market Fund Regulation (“MMFR”). MMFs in existence prior to 21 July 2018 (the date from which the MMFR applies) have until 21 January 2019 to comply with the MMFR but must submit an application for authorisation to the Central Bank by 1 September 2018.

The UCITS MMF application forms are available here. The alternative investment funds MMF application forms are available here.

EU Implementing Measures Published

At a European level, two implementing measures under the MMFR have been published in the Official Journal of the EU:

  • a delegated regulation relating to simple, transparent and standardised securitisations and asset-backed commercial papers and requirements for assets received as part of reverse repurchase agreements and credit quality assessment methodologies; and
  • an implementing regulation laying down implementing technical standards with regard to the template to be used by managers of MMFs when reporting to competent authorities under the MMFR.

Both regulations apply from 21 July 2018.

Outstanding Issues

In relation to the use of reverse distribution mechanisms (“RDM”) and historic pricing by constant net asset value MMFs (“CNAV MMFs”), there has been little progress since our last Investment Funds Newsletter in April. By way of reminder, RDM, also known as share cancellation, is used by CNAV MMFs denominated in negative yielding currencies (primarily Euro) to apply negative income to investor shareholdings. The distribution of income, whether positive or negative, is necessary for CNAV MMFs to maintain a constant NAV. In February of this year, the European Commission (“Commission”) wrote to the European Securities and Markets Authority (“ESMA”) to advise that the use of RDM was incompatible with the MMFR.

Matheson partners, through our involvement with the Irish Funds Money Market Funds Working Group, continue to engage with stakeholders in relation to this issue. There has been no public statement by ESMA to clarify the issue since the Commission’s February letter. On 20 July 2018, ESMA published a letter it had written to the Commission asking the Commission to provide clarity to market participants and investors by making the opinion of the Legal Service of the Commission clear to the wider public “through means of communication deemed most appropriate”.

There are also ongoing discussions with the Central Bank as to the viability of the use of historic pricing by MMFs. 

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