Regulatory pressures coupled with poor fee earnings are creating a “double whammy” situation facing money market funds in Europe, according to researchers at Cerulli Associates.
In the latest issue of The Cerulli Edge – European Monthly Product Trends the research and consulting firm warns that some products are becoming unviable as a result.
From the regulatory perspective, it notes that the European Securities and Markets Authority is “looking to restrict the use of constant net asset value funds (CNAV), particularly those that invest in corporate rather than government debt.”
The option has been put forward of a new type of product, the low-volatility net asset value (LVNAV) fund, which would to some extent facilitate still using a constant value structure, but “if the market value of an LVNAV money market fund deviates more than 20 basis points from the CNAV, it must convert to a variable net asseet value (VNAV) product,” Cerulli notes.
“Confusion still prevails,” warns Angelos Gousios, director of European retail research at Cerulli.
Meanwhile, the regulations stipulate that any money market fund that existed at the end of 2017 has to comply with the new rules by January 2019. And any fund launched this year has to comply by July.
“If the biggest change was CNAVs transitioning to LVNAVs, this may not seem earth shattering. But there is still considerable uncertainty about ESMA’s stance on LVNAVs,” added Gousios.
“The outlook appears cloudy at best for MMF providers. With fees unlikely to pick up anytime soon, the regulatory uncertainty is just adding to providers’ woes as negotiations with ESMA continue.”
Click here to access a copy of the report: The Cerulli Edge – European Monthly Product Trends Edition, April 2018 Issue.