ESMA consults on the review of the methodology on stress test scenarios for Money Market Funds

The European Securities and Markets Authority, ESMA, started a consultation on the review of the methodology included in the Guidelines on stress test scenarios under the MMFR.
The proposed amendment of the scenarios relates to the potential changes in the level of liquidity of the assets held in the MMF portfolio and the hypothetical macro-systemic shocks affecting the economy as a whole due to the most recent market movements and the fallout from COVID-19.
The modifications in the Consultation Paper (CP) to the current methodology focus on:
+ The proposed revision of the liquidity scenario aims to better take into account the interaction between liquidity and redemption pressures, in light of the stress event experienced in March 2020.
+ The proposed revision of the macro scenario aims to better capture the macroprudential impact of the scenario, by including assumptions on the underlying markets and other market participants.
Last but not least, the CP also discusses ESMA’s thoughts on a hypothetical climate risk scenario and solicits input from stakeholders.