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Systemic risks were exposed following the onset of the Covid-19 pandemic, and money market funds now face the prospect of sweeping regulatory reforms, says Moody’s Investors Service.

In a new report, the rating agency said that various regulators are considering reforms to the rules for money market funds to address issues that arose amid extreme market volatility.

That volatility touched off a rapid flight to quality that put pressure on fund liquidity and sparked a drop in fund valuations, Moody’s noted. “[That dash for liquidity exacerbated short-term market pressures, raising concerns about the systemic risks posed by the sector,” it said.

As a result, the agency is expecting to see reform efforts from policymakers in both the U.S. and Europe.

“Regulators have put all options on the table, including several proposals that would drastically change the structure of prime [money market funds],” it said.

Those reforms aren’t likely to drop until 2022, Moody’s said, noting that these efforts come on the heels of, “transformative reforms” to the money market sector, which were implemented in 2016 in the U.S. and in 2018 in the EU.

At the same time, the Financial Stability Board (FSB) is carrying out its own review of the sector, Moody’s said.

“The FSB’s review, due in July 2021, will consider the factors that amplified stress in short-term credit markets last year,” Moody’s said. The review will examine how liquidity may be affected by “non-bank sector’s growing role in financial intermediation, banks’ retreat from security dealing, and margin calls on leveraged investors.”