A statement from the IMMFA (Institutional Money Market Funds Association) on Wednesday, 29 April, said that the European Parliament (EP) reached a milestone in its decision-making process on reform of money market funds in Europe. The IMMFA praised the EP's rejection of the capital buffer originally suggested by the EC.

However, it stated that, overall, the political compromise that has been reached by Parliament might not be good news for European capital markets and could damage businesses and other entities that use money market funds for short-term financing:

“AUM [assets under management] in European MMFs stands at approximately €1 trillion. If implemented, the changes suggested by the EP would have wide-ranging and long-term ramifications for both the constant net asset value (CNAV) and variable net asset value (VNAV) sectors of the money market fund market. The impact on many everyday businesses, local authorities, charities and other MMF investors should not be underestimated. The EP’s proposals reflect the political agenda of various MEPs rather than a serious attempt to reduce systemic risk within the European money markets.”

The IMMFA – a trade association that represents constant NAV (net asset value) money market funds – also expressed other reservations about the EP's draft. Their main concerns were:

• the options presented to the CNAV industry are “severely limited under the Parliament’s draft”
• the proposed LVNAV (low-volatility net asset value) structure is not an adequate substitute for the CNAV product. The IMMFA stated: “Only a very small proportion of the current CNAV market would be able to transition into this new MMF formulation... These measures have potential to destabilise the short-term capital markets for years to come.”

The decision reached by the EP on Wednesday is just one milestone in the 'co-decision' process. The Council of Ministers (CoM), a body of senior representatives from the 28 EU member states, is still debating its own position on MMFs. According to the IMMFA, once both the EP and the CoM have agreed their respective positions on the MMFR, the final legislative stage, the Trilogue negotiation with the European Commission, takes place.

The next step in the decision process is for the CoM to reach its decision. There is no timeline for this yet but, with Luxembourg taking the presidency of the Council in July this year, it is hoped that the process will move at a reasonable pace. According to the IMMFA, there is a will among stakeholders to push through the law to Trilogue stage, although there is no set date.