ESMA sets guidelines for Money Market Funds Stress Tests

European Securities and Markets Authority (ESMA) has issued the guidelines regarding the stress testing of money market funds and reporting on money market funds to national competent authorities (NCAs), aimed at ensuring a coherent application of the Money Market Fund (MMF) Regulation.

ESMA Guidelines on stress testing establish common reference parameters of the stress test scenarios for MMFs or managers of MMFs.

Furthermore, the Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that managers of MMFs will transmit to competent authorities.

MMFs and managers of MMFs are expected to measure the impact of the common reference stress test scenarios specified in the Guidelines, the results of which should be shared with regulators through the reporting template with their first quarterly reports for Q1 2020.

Guidelines include stress test scenarios in relation to the following hypothetical changes in, or events affecting, MMFs’:

  • liquidity levels
  • credit and interest rate risks
  • redemptions levels
  • widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied, and
  • macro-economic shocks.

The Guidelines will be updated at least every year and will take into account the latest market developments. The current Guidelines include the calibration of the stress test scenarios for 2019.

Please remind that MMFs are required to report their stress test results by 2020.

Please find below the documents published by ESMA:

> Guidelines MMF stress tests Final Report
> Final report on MMF reporting
> Money Market Fund Reporting Technical Reporting Instructions

For information on the above, please contact Enrico Leone or Mirella Di Carlo.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.