On 12th August 2020, the Financial Services and Markets Authority (FSMA) published a document covering the guidelines issued by the European Securities and Markets Authority (ESMA) concerning stress testing scenarios under the MMF regulation, and their implementation by the FSMA.
The competent authorities and financial market players must do their utmost to comply with these guidelines and recommendations within two months of the issuance of a guideline or recommendation, each competent authority shall indicate whether it complies or intends to comply with this guideline or recommendation. If a competent authority does not respect it or does not intend to respect it, it informs the Authority, giving reasons for its decision.
It is in this context that ESMA issued, on March 3, 2020, a new version of the ” Guidance on stress testing scenarios under the MMF Regulation “.
As a reminder, the regulation states that the MMF stress test scenarios take into account the following factors:
- variations in the degree of liquidity of the assets held in the MMF portfolio;
- changes in the level of credit risk of assets held in the MMF portfolio, including credit events and rating events;
- fluctuations in interest rates and exchange rates; redemption levels;
- widening or narrowing of the spreads between the indices to which the interest rates of the securities in the portfolio are linked;
- macro-systemic shocks affecting the whole economy.
The guidelines issued by ESMA are aimed at money market funds and managers of money market funds. The FSMA will integrate these guidelines into its control system as from their entry into force.