EU money market fund rules delayed

EU lawmakers have delayed new rules to regulate money market funds used by big companies to park billions of euros after they clashed over how tough the changes should be.

The funds are also used by banks for short-term funding and the most contested element is a requirement for one type of fund, known as constant net asset value, to hold a cash buffer equivalent to 3% of assets.

The draft rules, and a separate draft law on regulating benchmarks such as the scandal-hit Libor interest rate, aim to make markets more transparent after the 2007-09 financial crisis, but both measures now face delays.

The European Parliament’s economic affairs committee found itself split yesterday over regulating money market funds, a trillion euro sector in the 28-country bloc. The aim is to stem any runs on the funds by investors during future financial crises.

The Association of Corporate Treasurers has said the changes would make the funds unviable and threaten an essential cash management tool for leading companies in many industries.

Constant net asset value funds account for half of the money market funds in the EU, most of which are based in Luxembourg, Ireland and France.

MEP Gay Mitchell, a member of the committee, said few lawmakers really understood what constant net asset values were and hasty rulemaking could see such funds flee the EU.

“It’s outrageous the way we are rushing through this legislation,” he told the meeting.

But Philippe Lamberts, a Belgian Green Party lawmaker, described Mr Mitchell’s assessment as “bordering on insulting”. “You are throwing around figures just to scare people... That is like the industry is doing. I won’t take this,” he told the meeting.

Constant net asset value funds aim to have a constant, €1 share price, but many regulators prefer the transparency of the other main type of fund known as variable net asset value, whose share price fluctuates in line with the market’s ups and downs.

Constant net asset value funds are effectively banned in France, whose regulator is anxious that the draft law is not diluted.

“Our first choice by far is a ban on constant net asset value funds for financial stability reasons but, for a compromise, having a minimum 3% capital buffer on them would be acceptable only if the threshold of 3% is maintained,” said Benoit de Juvigny, secretary general of French regulator AMF.

Time is running out as parliament goes to the polls in May and a new European Commission, whose role is vital in EU lawmaking, will not be appointed until the end of October.

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