L’ESMA publie son rapport final portant sur les modifications de la méthodologie des scénarios de stress tests de liquidité dans le cadre du règlement des fonds monétaires (MMFR)

The AFG published it’s response to ESMA’s publication on 19 December 2023 of its Final Report on Guidelines on stress test scenarios under the MMF Regulation, following a prior ESMA consultation running until 28 April 2023.
The proposed modifications aim to enhance the consideration of interactions between liquidity and redemption pressures, particularly in light of the stress events witnessed in March 2020. These modifications include the incorporation of concurrent redemption simulations and the sale of a portion of the portfolio through „vertical slicing,“ with market impact factored into the calculations.
The AFG acknowledges the importance of French money market funds, constituting 40% of French UCITS assets under management, totaling over 300 billion euros as of September 2022. France, holding a 21% market share in Europe, stands as a key hub for the domicile and management of euro-denominated money market funds.
The AFG expresses confidence in the effectiveness of the current MMF requirements, citing their resilience during the 2020 pandemic crisis. Despite substantial redemptions, French VNAV money market funds effectively managed outflows, maintaining investors‘ confidence.
The AFG questions the calibration levels for liquidity discount factors, emphasizing the need for a specified time horizon. Additionally, AFG raises concerns about the relevance of stress test scenarios related to hypothetical currency movements, emphasizing the operational complexities in MMF share sales through intermediary entities.
The association critiques the strength and realism of the proposed redemption stress test calibration, advocating for the consideration of slippage effects on top of bid-ask spread multiplication. AFG also highlights the challenge in modeling the link between liquidity and redemption pressures due to fund managers‘ proactive liquidity buffer management.
The AFG emphasizes the theoretical nature of stress test scenarios and urges caution in interpreting results, asserting that MMFs play a central but limited role in the market. It rejects the notion that MMFs are the source of liquidity crises and short-term financing problems, contending that a more comprehensive approach involving all market actors is necessary.
While agreeing with ESMA’s stance on including a climate scenario, AFG expresses reservations about its relevance for MMFs, citing the complexity of implementation and the need for reliable and consistent data. A comprehensive approach considering existing exclusion policies and evolving regulatory frameworks is advocated.
The local regulators have a two-month window from the publication of these ESMA guidelines to decide on compliance with the new text. Asset management companies are advised to await the application date determined by the AMF rather than preemptively adapting to the changes.