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22 October 2020

FT: EU sets sights on money market fund reform

French and Irish watchdogs worried about how close products came to experiencing a liquidity crisis in March

European regulators are calling for reforms of the continent’s €1.4tn money market fund sector after it came close to buckling under the coronavirus-induced market stress in March, an event that would have had ripple effects across the financial system. Investors pulled huge sums from money market funds — short-term instruments that are used to manage cash flow — when the coronavirus crisis escalated earlier this year.

In Europe, outflows were close to the levels seen in the 2008 financial crisis, mirroring similar redemptions in the US. Redemptions on both sides of the Atlantic subsequently abated due to the intervention of central banks. But influential voices including the EU’s top financial regulator and the French markets watchdog are concerned about how close the system came to experiencing a large-scale liquidity crisis and are urging reforms.

Robert Ophèle, chairman of the Autorité des Marchés Financiers, said some European money market funds were “on the brink of being suspended”, a situation that would have been “a disaster with detrimental spillover effects throughout the whole financial sector”...

more at FT

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