18.10.2012
Capital Market

Proportional regulation of money market funds needed

The European Commission intends to change the regulatory framework of Undertakings for Collective Investments in Transferable Securities (UCITS). Particular focus is placed on money market funds. They shall now become subject of stronger regulation, according to the plans of the Commission. Furthermore, the possibility to redeem money market funds in order to avoid liquidity shortages, i.e. the fungibility, shall be limited. The German insurance industry questions the adequacy of these plans.

Current regulation on UCITS funds is characterized by a high standard. However, with the ongoing discussion regarding shadow banks, the EU Commission plans to change this regulation, which would affect money market funds in particular.

Money market funds are important investment vehicles for the money markets as well as for short-term oriented investors due to one of their key features: the possibility to return them without any restrictions, be they temporal or related to amounts.

Changes are contradictory to the legal nature of money market funds
Currently, the EU Commission is considering the introduction of lock-up periods and restrictions as well as fees regarding the redemption of money market funds. This would not only be contradictory to the legal nature of money market funds, but would also negatively affect their functionality and represent a serious drawback for the money market and security-oriented investors.

Nevertheless, the intention to expand the scope of assets that are eligible for UCITS funds is generally welcomed by the German insurers. Further possibilities for investments via UCITS funds will become available and the applicability of UCITS funds would increase.

The introduction of preventive actions in order to avoid liquidity shortages in crisis situations also makes sense. In this respect, the interests of investors in having the option to redeem their shares in money market funds at any time as well as the protection of the remaining investors’ interests need to be addressed appropriately.

The GDV’s complete position paper is available in the download section.

Downloads

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on the European Commission’s Consultation Document Undertakings for Collective Investment in Transferable Securities (UCITS)

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