The FCA is looking to introduce new rules for money market funds (MMFs) stipulating they must hold ‘sufficient liquidity for adequate resilience’.
The proposed changes follow a consultation launched in December 2023 that considered significantly increasing the minimum liquid asset requirement for all MMFs, raising daily liquid assets (DLA) and weekly liquid assets (WLA) levels to 15% and 50% of their assets respectively.
However, a significant majority of responses questioned the original proposals, pointing out firms manage liquidity risk through modelling and observing outflow behaviour.
The current minimum WLA requirements as set out in UK MMFR will therefore remain, but the FCA will issue guidance stating its expectation that stable NAV MMFs will need to hold 40% WLA and variable NAV MMFs will need to hold 20% WLA in order to meet the new resilience requirement.
Any exemptions of this guidance should only be attributed to meeting redemptions or for reasons that are beyond the manager’s control, the regulator said.
The current minimum DLA requirements will remain at their original levels.
In its update the regulator said: “Our updated proposals will deliver a clear increase in the level of resilience expected of UK MMFs while making sure they can continue to meet the needs of investors. They are subject to final consideration and sign-off within the FCA.
“The government has set out its expectation that legislation for the repeal of the MMFR will be introduced by the end of 2026. We plan to make our new MMF rules to this timescale.”
