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Slovak presidency successfully concluded negotiations on Money Market Funds


07 Dec 2016


Euro & Finance

Brussels (7 December) - The Slovak Presidency of the Council of the EU is delighted to announce that it has successfully concluded negotiations on the EU’s proposed regulatory framework for Money Market Funds (MMFs), which have been ongoing for more than three years. The legislation forms part of international efforts to develop a robust regulatory framework for the shadow banking sector. In November, the Slovak Presidency concluded political discussions with the European Parliament and European Commission on the principles for the future functioning of MMFs in the EU, and the Committee of Permanent Representatives (COREPER) has today approved the final text of the legislation.

Peter Kažimír, Slovak Finance Minister and President of the Council, said: “This is a milestone in the regulation of the shadow banking sector as it should reinforce financial stability”.

In the EU, MMFs manage over EUR 1 trillion worth of assets. These funds invest in short-term financial instruments issued by banks, governments or corporations and play a critical role in the real economy. For companies and other professional investors, they provide an important source of short-term financing. While considered low-risk investments, during the financial crisis, these funds experienced a precipitous fall in liquidity, which prompted international discussions at G20 level on how to improve MMFs’ resilience to market stresses. To deliver on the EU’s international commitments, this new MMF Regulation enhances the ability of MMFs to better withstand the pressure of increased investor redemptions in stressed market conditions, which might otherwise threaten the value of investors’ assets.

This new EU legislation requires that MMFs invest only in quality assets, introduces stronger transparency rules around the composition of an MMF’s portfolio, limits MMFs’ dependence on external credit rating agencies, and applies measures to ensure sufficient liquidity and effective risk management and cuts links between MMFs and the banking system by prohibiting sponsor support.

The original draft legislative proposal was published by the Commission in 2013. In April 2015, the Parliament adopted amendments to that proposal. The Council, after long and difficult negotiations, agreed its compromise general approach text in June 2016. The Slovak Presidency then immediately began political negotiations with the Parliament and Commission – the so-called 'trilogues' – with the ambition of finding a final text that was acceptable to all three institutions.

The Slovak Presidency, chaired by Kamil Šaško, represented the interests of the 28 Member States of the Council during the five trilogue negotiations.

In parallel with the political negotiations, there were ongoing technical discussions which were undertaken by the national experts of the Ministry of Finance and National Bank of Slovakia. A compromise text was finalised on the basis of the political agreement reached, and was supported by Member States, the Parliament and the Commission.

The final text will now be examined by lawyer-linguists, and the legislation will come into force next year.

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