Global policymakers have made progress on reforms to the rules for money market funds, but concerns about liquidity and the industry’s reliance on credit ratings remain, suggests a new report published Wednesday by the International Organization of Securities Commissions (IOSCO).
According final report on the Peer Review of Regulation of Money Market Funds, the countries with significant money market fund (MMF) industries have generally made progress in introducing reforms, but the level of that progress varies between jurisdictions. Among the largest jurisdictions, only the U.S. has made final implementation measures in all of the eight reform areas examined by IOSCO, the report found.
The global MMF market is dominated by five jurisdictions, the report states, the United States, France, Luxembourg, Ireland and China, which account for almost 90% of global assets under management in MMFs.
Although the U.S. has introduced final measures in all of the areas examined by IOSCO, the other major jurisdictions are “still in the process of developing and finalizing relevant reforms,” the report says.
Among smaller MMF markets, progress is “less advanced”, the report notes, with only four other countries (Brazil, India, Italy and Thailand) having adopted final implementation measures in all reform areas.
Canada counts among the smaller MMF markets, ranking 13th out of the 15 markets with a significant MMF industry, according to IOSCO. The review, however, looked at the progress in 31 jurisdictions around the world.
Most jurisdictions have made progress on introducing limits to the types of assets that funds can hold, and the sorts of risks they can take, the report notes. However, further progress is needed in some jurisdictions on requirements about imposing credit limits. Reforms to valuation rules are generally well underway, the report found, as are measures dealing with disclosure to investors, and funds use of repos.
Reforms dealing with liquidity management were generally less advanced and uneven, the report says, “perhaps reflecting that pre-crisis, most jurisdictions did not have requirements in this area.” Progress was least advanced for requirements on MMFs to establish sound policies and procedures to know their investors and requirements to hold a minimum amount of liquid assets, the report adds.
Although there has been some progress on reforms to address funds reliance on credit ratings, a number of countries still have requirements restricting their MMFs to invest in instruments with specified external credit ratings, the report notes.
A follow up review is slated for 2016, which will report on the status of implementation of those remaining measures among the 15 largest jurisdictions. The current review was led by regulators from Australia, and involved representatives from the U.S., France, Japan, Brazil, and others.
The MMF industry was one of the areas targeted by policymakers for reform as part of effort to bolster financial stability and guard against systemic risk in the wake of the financial crisis.