INTERNATIONAL: IOSCO Reviews Money Market Funds Recommendations

Monday November 23 2020

The International Organization of Securities Commissions (IOSCO) has published a diagnostic report analyzing the events that occurred in the Money Market Funds (MMFs) sector during the market turmoil in March 2020. Simultaneously, IOSCO published a thematic review assessing the implementation of selected IOSCO recommendations issued in 2012 to strengthen the resilience of MMFs globally.

Main findings by Recommendation

Recommendation 4 – Use of fair value and amortized cost method

The Review Team assessed that three out of the nine Participating Jurisdictions are ‘Fully Consistent’. The participating EU jurisdictions and Japan have been rated as ‘Broadly Consistent’ and China is assessed as ‘Partly Consistent’, due to the gaps identified notably in relation to the use of amortised cost accounting (ACA) at the individual portfolio instrument level.

Recommendation 5 – Third parties to review MMFs’ valuation practices

For Recommendation 5, eight out of the nine participating jurisdictions have been rated as ‘Fully Consistent’. The RT rated Brazil as ‘Broadly Consistent’ as its regime appears to not require ‘prompt remedial action’ when weaknesses in valuation practices are identified.

For Recommendation 5, eight out of the nine participating jurisdictions have been rated as ‘Fully Consistent’. The RT rated Brazil as ‘Broadly Consistent’ as its regime appears to not require ‘prompt remedial action’ when weaknesses in valuation practices are identified.

Recommendation 6 – MMFs’ policies and procedures to know their investors

The Review Team assessed that eight out of nine Participating Jurisdictions are ‘Fully Consistent’. Due to the gaps identified regarding knowing the investors of MMFs, China has been rated as ‘Broadly Consistent’.

Recommendation 7 – Minimum level of liquid assets

Eight out of nine of the participating jurisdictions have been rated as ‘Fully Consistent’. They all provide for liquidity requirements in line with the recommendation even if the type of eligible assets and the amount can vary significantly. However, India has been rated “Broadly Consistent” as its rules for Liquid Funds came into force nine months after the cut-off date of the Review and another category of MMFs does not have a specific liquidity requirement.

Recommendation 8 – Stress testing

The Review Team has rated all nine participating jurisdictions as ‘Fully Consistent’. The use of stress tests is systematically required in all jurisdictions except for Overnight Funds in India which corresponds to a subset of the Indian MMF range and for which stress tests are considered as irrelevant as they only invest in overnight securities.

Recommendation 9 – Tools to deal with exceptional market conditions & substantial redemption pressure

The RT has rated all nine jurisdictions as ‘Fully Consistent’ as they all allow for the use of liquidity management tools and require specific pre or post sale disclosures to investors regarding the use of these tools.

Recommendation 10 – Safeguards towards stable NAV MMF or conversion to variable NAV

Brazil and India were rated ‘Fully Consistent’ on the basis that their regimes do not allow stable NAV. The other seven participating jurisdictions which have frameworks allowing stable NAV MMFs have been rated as ‘Fully Consistent’ as it appears that their regimes have put in place safeguards for their stable NAV MMFs that are consistent with the 2012 Policy Recommendations.

Click on the link for further information.