Tuesday, May 8, 2012

IOSCO Wants Feedback on Money Market Reforms

At the request of the Financial Stability Board, IOSCO has published a consultation paper on the potential regulatory reforms of money market funds.  The purpose of the consultation paper is to share with market participants IOSCO’s preliminary analysis regarding the possible risks money market funds may pose to systemic stability, as well as possible policy options to address these risks.  IOSCO is actively seeking feedback on this preliminary work, and commenters have the opportunity to shape IOSCO's ultimate recommendations to the FSB.

IOSCO's work on this topic represents one of the five workstreams the FSB has arranged to study the workings and potential regulation of shadow banking.  IOSCO's mandate from the FSB is to study in detail the following areas:

  • The role of MMFs in funding markets;
  • Different categories, characteristics and systemic risks posed by MMFs in various jurisdictions, and the particular regulatory arrangements which have influenced their role and risks; 
  • The role of MMFs in the crisis and lessons learned;
  • Regulatory initiatives in hand and their possible consequences for funding flows; and
  • The extent to which globally agreed principles and/or more detailed regulatory approaches are required/feasible.
Upon completing its study and soliciting comments, IOSCO will formulate policy recommendations by July 2012.

The consultation paper acknowledges that some regulatory changes have already occurred globally with respect to money market funds, most notably in the US; however, a number of areas of risk remain, and the safety of money market funds is paramount for financial stability at large.  IOSCO's preliminary work addresses a range of policy options and alternatives, including prohibiting the use of amortized cost valuation, requiring buffers to protect net asset values per share, imposing bank-like regulation for money market funds, setting portfolio liquidity requirements, and reducing reliance on ratings. 

IOSCO is actively seeking substantive feedback on this preliminary work, and commenters have the opportunity to shape IOSCO's ultimate recommendations to the FSB.  Comments on the consultation paper are due by May 28, 2012.
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