Fund groups gain reprieve from EU money market rules
Regulators forced to provide two-month extension at last minute
Fund managers including BlackRock, Morgan Stanley Investment Management and State Street Global Advisors have been allowed to delay implementing EU rules after an eleventh-hour alteration to the regulation.
With a reform to Europe’s €1.3tn money market fund sector due to come into force on January 21, many large asset managers were ready to comply. Some had it scheduled for Monday.
Money market funds help investors manage cash flow. They typically invest in cash and super-safe short-term debt.
The industry’s plans were derailed after a last-minute decision by the regulator to force companies to remove a tool, the so-called share-cancellation mechanism, which is used by many money market funds to deal with negative interest rates in the eurozone.
EU regulators that oversee the largest proportion of money market funds in Europe told managers this week to remove references to the mechanism then resubmit their implementation plans.
Given the time allowed, the Irish and Luxembourg financial regulators, the Central Bank of Ireland and the Commission de Surveillance du Secteur Financier, had to backtrack on the deadline, giving fund managers two more months to comply.
In a joint statement on Friday, the watchdogs said funds will now have to comply with the regulation by March 21, provided that they submit their amended plans by the original deadline of January 21.
MSIM was planning to bring its euro-denominated money market fund into compliance on Monday but told investors that it would delay implementation. It said it had been instructed “at short notice” by the CSSF not to proceed.
BlackRock has pushed back the implementation date for its euro fund to March, yet planned to proceed on Monday with the conversion of its dollar and sterling-denominated funds, which are not affected by the rule change.
Goldman Sachs Asset Management, which was also due to convert its funds to the new regime on Monday, declined to comment.
SSGA, Legal & General Investment Management, Invesco, DWS, HSBC Asset Management and UBS Asset Management also intend to delay implementation for euro-denominated funds.
The moves demonstrate how the news caught fund managers off-guard.
Last summer the European Commission told the Financial Times that the mechanism would not be permitted under the new money market rules.
Yet this was not confirmed by the CBI and the CSSF until late last year, by which time many asset managers had finalised preparations.
Marina Cremonese, senior analyst at Moody’s Investors Services, said: “[Asset] managers would have been ready on time if the message from the regulator had been clear from the start.”
Alastair Sewell, regional head of Fitch Ratings’ fund and asset manager group in Europe, said: “The [money market fund] regulation was approved in 2017 [yet] the matter [of share cancellation] was settled in very late 2018 and early 2019, very close the original deadline.”
The delay appears to have been caused by a stand-off among national regulators. While the CSSF and CBI advocated the use of the use of share cancellation, other EU national regulators such as France’s Autorité des marchés financiers were aligned with the commission’s position.