FCA consults on updating Money Market Funds regime

The FCA has published its consultation paper (CP23/28) setting out its proposals to enhance the resilience of Money Market Funds (MMFs) based in the UK. It has been developed in collaboration with the Treasury and the BoE.

MMFs serve as investment vehicles allowing quick access to funds while investing in short-term, low-risk assets. They cater to various entities, including financial institutions, corporations, local authorities, charities, and individuals, managing short-term cash needs.

The consultation aims to address the vulnerabilities observed during crises, such as the Covid-19 Pandemic, where MMFs faced pressure due to sudden cash demands, risking their ability to meet investors’ needs. Proposed changes focus on augmenting MMF liquidity to prevent market stress scenarios where they might struggle to meet redemption demands without incurring losses or suspensions. The adjustments include increasing liquid asset requirements and delinking certain regulatory obligations, aimed at minimising the advantage gained by early investors.

These proposals aim to fortify the regulatory framework, aligning with global efforts to enhance MMF resilience and contribute to financial stability while maintaining the MMF operational model. Moreover, the consultation seeks to incorporate MMF rules from EU law into the UK regulatory framework, ensuring a cohesive approach.

The consultation closes on 8 March 2024.

FIN. Team