Regulatory Change and Unintended Consequences

The MMF industries in the US and Europe are highly regulated, particularly following the global financial crisis of 2008. The funds have required liquidity levels, and investors can face additional costs and fees if their movement of cash out of a fund has a detrimental impact upon it. The first significant test of these rules came in March 2020’s short sharp liquidity shock. Every area of the financial system witnessed extreme drawdowns on liquidity. And yet, as ICD analysis in May 2020 found, MMFs did not ‘break the buck’ despite this intense pressure.

Regardless, regulators on both sides of the Atlantic are again considering regulatory reforms for MMFs in ways that could challenge the viability of certain MMFs should the proposals become law.

As François Masquelier, CEO, Simply Treasury, and Chair of EACT and the Luxembourg Corporate Treasury Association (ATEL) remarks:

“Overregulation is the enemy of good intentions. You might make the product very resilient by ring-fencing it but risk turning it into a fortress that nobody wants to enter.”

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