Where Next in Europe?
by Susan Hindle Barone, Secretary General, IMMFA
The implementation of any change to money market funds in Europe is still comfortably in the distance, but the debate over the eventual style and shape of this important cash management tool has moved forward. Here we’ve tried to explain how the process works, and how the future of MMF Regulation is decided in Europe.
The European process
The European Commission (EC) proposed a new Regulation for money market funds (MMF) in September 2013. This was already considerably later than had been expected and as anticipated, the proposal contained many measures which would be problematic for MMFs and their investors.
The key issues from an investor’s point of view are:
- The possible forced conversion from CNAV MMF to VNAV MMF
- A ban on fund level ratings
- Changes in the pricing of MMF which may make same day operation difficult
Following the EC’s proposal of a Regulation, the European Parliament and Council of Ministers then each separately considers and amends the EC’s document, formally adopting their own positions which can be significantly different from the original proposal.
The Members of the European Parliament (MEPs) started to consider this piece of work at the end of last year. However progress was slow and at times difficult. In the Parliament the MMF work is done initially by the Committee for Economic and Monetary Affairs (ECON). The ‘rapporteur’ is the MEP responsible for leading the ECON’s work. Each major party grouping appoints its own ‘shadow rapporteur’ to lead its efforts. As the topic is debated, the MEPs are guided by the position of their party, but also by the make-up of their own constituencies. The MEPs work towards finding a version of the Regulation which a majority can support; the final European Parliament report is adopted in a full plenary session, when all the MEPs are able to vote.
The original rapporteur, Said El Khadraoui of the Socialists and Democrats grouping, supported much of what the EC proposed. However, after various debates, a majority of the ECON Committee either disagreed with the proposal or believed that more time was needed to better understand its ramifications. Therefore the ECON Committee decided not to vote on the draft report proposed by the rapporteur before the end of the closing parliamentary session and the May 2014 elections.