EU abandons reform of money market funds

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Controversial proposals that could have killed off Europe’s €450bn-strong fixed-value money market fund industry have been pushed back to the next European parliament.

The parliament’s economic and monetary affairs committee was due to vote on reform of so-called “constant net asset value” funds today, but the vote has been abandoned with the committee said to be “split down the middle” on the proposals.

The European Commission proposed last year that CNAV funds should be forced to hold a cash buffer equal to 3 per cent of their assets to help avert a repeat of the “runs” some funds suffered during the financial crisis. However, opponents argued this would kill off the industry, as the low-margin nature of money market funds would render the creation of a buffer uneconomic.

A last-minute attempt by opponents to float a compromise, which would instead have barred fund sponsors from bailing out their funds in times of distress, failed to break the impasse.

Gay Mitchell, an Irish Fine Gael MEP and opponent of mandatory buffers, said: “There has been very little effort to meet genuine concerns about CNAVs. The majority [of committee members] feel we should leave it to the new parliament to give it timely consideration. Rushed legislation would be bad legislation.”

Another opponent of the buffer admitted the move was a “gamble”, given the likelihood that the Socialists, who tend to be more in favour of a buffer, will gain ground in May’s elections.

Opponents instead appear to be pinning their hopes on a view that industry regulators might ease up on their push for widescale reform.

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