FCA sets out proposals to increase liquidity requirements for money market funds
In the consultation, the FCA said it would be significantly increasing the minimum proportion of highly liquid assets that MMFs have to hold.
In a consultation published today (6 December), the regulator unveiled plans to significantly increase the minimum proportion of highly liquid assets that UK money market funds (MMFs) must hold, in an effort to enhance their resilience.
The proposals seek to require money market funds' daily and weekly liquid assets levels to rise to 15% and 50% of their assets, respectively.
These are increases from a daily level of 7.5% for variable NAV MMFs and 10% for other MMFs, and a weekly level of 15% for variable NAV MMFs and 30% for other MMFs.
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This is meant to ensure that MMFs have enough liquid assets to withstand large amounts of withdrawals over a short period in severe but plausible market stresses.
In October, the Bank of England's Financial Policy Committee called for money market funds to have their liquidity requirements raised, identifying them as a «significant threat» to financial stability.
The FCA said this change will «significantly reduce the first-mover advantage» that investors in MMFs have, enabling them to withdraw as soon as possible when market stress begins.
Secondly, the FCA proposed removing a rule that links the liquidity levels of MMFs and the need for the manager to consider or impose tools such as liquidity fees or redemption gates.
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These changes will only apply to MMFs that can offer subscriptions and redemptions at a constant net asset value, known as stable NAV MMFs.
«This proposed policy change is known as ‘delinking' and works to
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