Getting to Grips with the New European MMF Rules

With the European Money Market Fund (MMF) Regulations set for implementation in just over a year’s time, Jim Fuell explains how he and his team are helping their clients to understand their options under the changes that the new regime will bring.

The recently approved European Money Market Fund (MMF) Regulations have introduced several new structures for short-term MMFs. What options do you intend to offer your clients? 

The new regulations set out three new structures for short-term MMFs: public debt Constant Net Asset Value (CNAV), Low Volatility Net Asset Value (LVNAV) and Variable Net Asset Value (VNAV). Under the new rules, the line-up of our liquidity fund range will be changing, but the new regulation will not change the investment profiles of the funds or our investment philosophy. Figure 1 gives  a summary of the fund range options we intend to offer in the short-term space for USD, GBP and EUR investors. We continue to evaluate additional structural options and currencies, and will communicate with investors as these evolve.

Our investors have indicated that their preferred option for government investment is the public debt CNAV MMF, while the most popular option for credit or prime-style liquidity investors is the LVNAV structure. We will work to transition our existing range to the new structures in a way that minimises the impact for clients. Alongside the public debt CNAV and LVNAV structures, we also intend to introduce VNAV short-term MMFs for investors who prefer the features offered by this structure under the new regulations, or who may prefer to avoid the structured fees and gates that come with both the CNAV public debt and LVNAV MMFs.

The deadline for implementing the changes to existing MMFs is not until January 2019. Will you wait until then to make these changes?

Existing MMFs have until 21 January 2019 to comply with the new rules, but at this time we are targeting an earlier date of the fourth quarter of 2018 for the implementation of our modified fund line-up. Our top priority is to incorporate the changes in a way that works for our existing investors, so we are keeping close to them to discuss their options and preferences under the new rules. 

How should your corporate investors expect the changes to happen?

We take our regulatory responsibilities very seriously, and we are just as committed to making the transition to the new regime as smooth as possible for our investors. It is most likely that we will introduce our new line-up through a combination of conversions of existing funds and the launch of new funds. None of our existing funds will be modified without detailed communication and a notice period to our investors.  

In line with that commitment, we’ll be communicating any changes directly to our investors as 2018 unfolds, with our global team of client advisors keeping them up to speed throughout. In order to enact the changes required under the regulation, we need to change the Articles of Incorporation of our funds; in the first half of 2018, investors will be invited to vote on these changes at the Annual General Meeting. 

What are you telling clients who ask if the new MMF structures will be eligible for cash and cash equivalent treatment?

Much like the current MMF regulations, the new rules are silent when it comes to cash and cash equivalent treatment. However, we fully expect to continue offering our short-term MMFs with same-day liquidity, with a primary focus on capital preservation and with a credit profile that aims to retain its current external AAA MMF rating. Further, our short-term MMFs will operate in line with the new regulations, which are even more conservative than existing rules, and so we believe this will be helpful in supporting their eligibility for consideration as cash and cash equivalent.  We would encourage clients to engage with their external auditors in relation to this topic.

How are you helping clients to navigate the changes?

Helping clients map out and navigate a clear route to regulatory readiness is always front of mind when we work with our investors. To help them achieve this, we are supporting them in four key, practical ways:

What resources are available for investors wanting to learn more? 

We’re also providing extensive ongoing support through our European Money Market Fund Reform Resource Centre on the J.P. Morgan Asset Management Global Liquidity homepage. Set up late last year, the Resource Centre gives investors easy access to all of the insights we have produced on the new regulations, backed up by handy FAQs and summaries. We’ve also given presentations on the topic of reform at our Global Liquidity Investment Forums around the world, and have held numerous client roundtables to share our views and learn from our investors—an initiative that we will continue at locations around the globe. Lastly, our investment policy whitepapers are well known to our investors, who have asked us to help them in writing and /or reviewing their own investment policies as they adapt them in preparation for the new regulations.