“We are concerned about the impact of this regulation”, says Marc Saluzzi, Chairman of ALFI. “Money Market Funds represent 15 per cent of the European investment fund industry. They are important source of short-term financing for the economy. The rules proposed by the Commission, especially those on eligible assets and diversification, are too stringent and even exceed the rules governing UCITS, which is unjustified.
The proposal furthermore requires Constant Net Asset Value (CNAV) funds to hold a 3 per cent cash buffer, which would impact this category of money market funds even harder. CNAV funds represent 50 per cent of European money market funds.
ALFI believes that it is dangerous to extend “buffer” rules, which were initially designed for the banking sector, to investment funds which are already highly regulated. Mr Saluzzi explains: “The cost of capital buffers are simply too high for CNAV money market funds, particularly in the current low-interest environment”. The capital buffer will, in addition, create problems for fund managers which offer this product globally, especially if the US SEC doesn’t apply the same regulation.
According to ALFI, European clients find the accessibility, diversification, liquidity and yield offered by money market funds a compelling alternative to bank deposit or securities. CNAV funds appeal to a large number of investors as they offer operational efficiency, simplicity of tax treatment and accounting ease.
Mr Saluzzi concludes: “Money market funds play a critical role in the short term financing markets. Regulation should not put them at risk".
© ALFI - Association of the Luxembourg Fund Industry
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