Réponse de l’AFG à la consultation de l’ESMA sur son projet de modification de la méthodologie des scenarios de stress tests dans le cadre du règlement MMFR

The AFG has provided comments on ESMA’s Consultation Paper on the draft guidelines on stress test scenarios under the MMF Regulation.
The AFG agrees with ESMA’s position on the inclusion of a climate scenario, stating that it is not relevant for MMFs and that the implementation would be complex. AFG also believes that the current MMF requirements for liquidity management are relevant and proved to be effective during the pandemic crisis.
The AFG has some comments on the current framework, particularly on the calibration levels for the liquidity discount factors, which they believe are too high. They also believe that the stress test scenarios in relation to hypothetical movements of exchange rates do not make sense in the context of the entire currency risk exposure being hedged. AFG thinks that the calibration of the redemption stress tests is much too strong and unrealistic compared to what has been seen during the covid crisis.
The AFG agrees that the price impact of asset sales should be taken into account in stress tests, but they believe that estimating the size and market depth of money market instruments is a difficult exercise, and the assessment of the price impact cannot be accurate enough to provide a sound estimation. AFG also agrees that considering the interaction between liquidity and redemption pressures makes sense, but this link is not easy to model due to the fund manager’s cautious approach of increasing the liquidity buffer when liabilities become too concentrated.
The AFG emphasizes that these stress test scenarios are theoretical, and care must be taken in their interpretations and the conclusions that can be drawn from them. They believe that assessing systemic risk using data resulting from MMF liquidity stress tests presupposes considering that these funds play a central role in the triggering of market crises, their acceleration, and are also a contagion factor for the sector of short-term debt issuers. However, AFG thinks that MMFs‘ role is central but limited, and they act as an interconnection between a short-term financing need and a short-term investment.
MMFs can only finance issuers if their investors are present, and they suffer from the drying up of liquidity, like any other market investor. MMFs are only a drive belt and are not the source of liquidity crises and short-term financing problems for issuers. MMFs do not create contagion, and they may act as a buffer in a crisis. A more comprehensive approach including all actors should be contemplated.