EU Treasurers Keep Close Eye On Money Market Fund Reform

The European Council is pushing forward with money market fund reform, forcing corporate treasurers to assess cash holdings, reports in The Wall Street Journal said this week.

The European Council voted in favor of those reforms that “impose stricter liquidity requirements and limit redemptions on money-market funds,” the publication wrote, adding that companies often rely on these funds as something easily convertible to cash. Reports say the European money market funds space is worth about $1.33 trillion, based on data from the Institutional Money Market Funds Association.

The new rules would impose mandatory fees and redemption hurdles. Reports said that, in the context of the EU’s negative interest rate policy, the reforms may cause companies to back off from money market fund investments.

During the Association of Corporate Treasurers conference, held in the U.K. this week, corporate treasurers examined how these rule changes, which would go into effect in 2018 or 2019, would affect them.

“We are at the moment looking at it and are preparing the board,” said Group Treasurer at Burberry Fiona Rose. The company has invested “hundreds of millions of pounds” in money market funds, reports said. Burberry is deciding whether to make changes to those investments as a result of the rule change. “We will have to look at where to deposit our cash,” Rose added.

But the decision isn’t easy.

“While there is concern about the fees and the gates [redemption hurdles], they do offer protection to investors,” Rose said.

The U.S. introduced similar rule changes that led to a massive outflow of cash from certain types of funds, reports said, and forced corporate treasurers to dramatically change their investment strategies.