IRELAND: CP86 Framework and Money Market Funds – Speech

Thursday October 22 2020

A speech has been made by Derville Rowland, Director General, regarding several topics such as the impact of COVID-19 on the financial markets, CP86 framework and the persisting effect of the pandemic on money market funds and money markets.

Highlights:

• COVID-19 crisis exposed vulnerabilities in the funds, asset management and wider non-bank sector that need addressing
• Central Bank published research on these issues contributing to wider international work analysing these issues
• Firms must be well run and operate to highest standards – CP86 framework must be fully implemented

The Director General said: “This sector plays a vital role in the functioning of the financial system and the financing of the real economy. But we need to assess the vulnerabilities exposed by the COVID-19 crisis, identify the lessons to be learned, and further enhance the resilience of the system. There is significant work taking place in international fora analysing these issues, and we are actively contributing to these considerations. The Central Bank publishes new research as part of that process, examining the behaviour of Irish-domiciled funds during the COVID-19 crisis, and the persisting effect of the pandemic on money market funds and money markets.”

Ms Rowland noted that macroprudential policy for the market-based finance sector remains at an early stage of development.  “This is why we are assessing what steps need to be taken to complete the macroprudential framework for the market-based finance sector. Our view is that a considered and completed framework would be good for the sector as a whole as well as for the stability of the financial system and ultimately the real economy. We look forward to continuing to work with international counterparts to further that objective.”

Ms Rowland also highlighted the findings from the Central Bank’s review of the CP86 Framework, noting the essential need for firms to be well governed, well run and operating to the highest standards. There can be no compromise on the objectives of the Framework as “investment funds are the repository of the enormous trust of their investors who place their savings and investments for the future with them. Fund management companies and their management and staff are responsible for fulfilling that trust.”

The Central Bank published two papers presenting research by the Central Bank on how COVID-19 has impacted the funds industry. “The persisting effect of the pandemic on Money Market Funds and money markets”, written by Brian Golden, examines the impact of a sudden surge in demand for cash in March, on money markets in general and Irish-resident Money Market Funds (MMFs) in particular. “Repricing of risk and EME assets: the behaviour of Irish-domiciled funds during the COVID-19 crisis”, written by Silvia Calò, Lorenz Emter, and Vahagn Galstyan, examines how emerging market economies experienced significant outflows of portfolio investment capital and how Irish-domiciled funds contributed to these portfolio outflows through sales of EME securities in response to heightened redemptions.

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