MALTA: Circular on Regulatory Developments Relating to the Money Market Fund Regulation

Wednesday May 16 2018

Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on Money Market Funds (“the MMF Regulation”) aims at increasing the resilience of Money Market Funds (“MMFs”) notably in adverse market conditions. The MMF Regulation serves as a basis for prevention of precarious liquidity situations, which could potentially have negative effects on the overall financial system. The Regulation, which is directly applicable, came into force on 21 July 2017.

The Regulation also reinforces the need for stress testing to be conducted against various scenarios, in order for MMFs to identify possible events which could have unfavourable effects on their position with implications on investors. Article 28 of the MMF Regulation sets out reference parameters which should be taken into consideration when conducting a stress test, including such factors as: changes in the level of liquidity of the assets, hypothetical levels of redemption and/ or hypothetical macro systemic shocks affecting the economy as a whole.

Regulatory developments within the MMF landscape

The MMF Regulation adds substantially to the 2010 CESR’s Guidelines on a common definition of European money market funds (“the Guidelines”), which served as a benchmark for the national framework in the context of MMFs. Naturally, the current versions of the Rulebooks regulating the Collective Investment Schemes, namely: AIF, PIF and UCITS, will be amended in order to reflect the changes.

New category of MMFs

The MMF Regulation categorises MMFs as short-term MMFs or as standard MMFs. In addition, it further classifies MMFs in three categories, based on their Net Asset Value: (a) variable net asset value (VNAV) MMFs; (b) public debt constant net asset value (CNAV) MMFs; (c) low volatility net asset value (LVNAV) MMFs. MMFs authorised by the MFSA shall explicitly state in their name, offering documentation and other marketing materials both their type and their investment objectives (public or private debt). A standard MMF shall not take the form of a public debt CNAV MMF or a LVNAV MMF.

Treatment of existing UCITS and AIFs

Based on Article 44 of the MMF Regulation, by 21 January 2019, all existing Collective Investment Schemes licensed in Malta as MMFs shall submit to the MFSA an application, supported by documents and evidence necessary to demonstrate the compliance with this Regulation.

The Authority draws the attention to the fact that the Collective Investment Schemes that have the characteristics of MMFs shall be identified as MMFs and shall be able to comply on an ongoing basis with the MMF Regulation.

Valuation methodology and sponsoring entities

The changes brought about by the MMF Regulation include restrictions on the composition of the portfolio and the valuation methodology of the underlying assets. It is to be achieved by ensuring diversification and high credit quality instruments. The MMF Regulation moreover provides for common standards to increase the liquidity of funds which is crucial in the case of unexpected redemption requests. The MMF Regulation reinforces the need for the fund managers to know the investors and to provide them with information on a constant basis. Moreover, it explicitly prohibits MMFs from obtaining support from third party sponsoring entities, including credit institutions.

Reporting to Competent Authorities

MMFs are required to report to the MFSA the information stipulated in Article 37(2) of the MMF Regulation. MMFs whose Assets under Management (AuM) is lower than EUR 100 million should report on an annual basis, whilst MMFs whose AuM is higher than this threshold should report on a quarterly basis. The reporting format is expected to be in XML mark-up language and the relevant templates and the precise requirements and the reporting deadlines will be communicated at a later date.

Action Required by MMF

A free format application, duly supported by the pertinent documentation as may be necessary, showing how the relevant MMF is complying with the MMF Regulation should be submitted to the Authority via e-mail on: ausecurities@mfsa.com.mt. The deadline for this submission is 30 November 2018 to ensure compliance by 21 January 2019 in line with Article 44 of the MMF Regulation.

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