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Money market funds wary of possible 'shadow banking' rules

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  • Money market funds wary of possible 'shadow banking' rules

GLOBAL - A possible clampdown on so-called 'shadow banking' by the EU could "seriously harm" the money market fund (MMF) sector, according to participants of a recent international conference held in Brussels.

Paul Schott Stevens, chief executive at the Investment Company Institute (ICI), warned that any capital requirement for trading could have an immediate impact on the industry.

His institute is the US association covering MMFs and a number of other types of funds, including mutual funds and ETFs.

The conference followed the European Commission's recent publication of a Green Paper on shadow banking that is now under review at the European Parliament.

Further discussion on the issue is expected in the Economic and Monetary Affairs Committee (Econ) next week.

The Commission's position on MMFs reflects its opinion that there is a need to head off any possible run on the MMF sector, although Brussels has acknowledged that non-bank credit activity does have the merit of offering investors an alternative to bank deposits.

"But," it added, "it can also pose potential threats to long-term financial stability".

A key European Parliamentary figure, Saïd El Khadraoui, told conference delegates from both the US and Europe that the Parliament was seeking to arrive at a clear position on MMFs by late this year, and that some regulatory steps were "absolutely necessary".

Describing the overall picture, the ICI's Stevens pointed out to delegates at the 2012 International Money Market Funds Summit that there was no clear substitution for MMFs.

"Banks cannot provide all that service," he said.

Speaking for European interests, Susan Hindle Barone, secretary general of the London-based Institutional Money Market Fund Association (IMMFA), also pointed out that pension fund managers were key users of MMFs.

She told IPE that the association would seek to have any legislation on the topic included in the revisions to the Ucits VI upgrade, rather than under any legislation on shadow banking.

The association's code of practice, she pointed out, was already considerably more restrictive than existing Ucits rules on trade in collective investments.

In Europe, MMFs account for more than €1trn in assets, according to figures from the European Fund and Asset Management Association, a key organiser of the conference. 

In 2008, the figure peaked, at more than €1.3trn.

The three main domiciles in Europe are France (36%), Ireland (27%) and Luxembourg (26%).

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