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Irish regulator’s guidance “should create safer framework for money market funds”

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A guidance note from the Irish regulator should lead to a stricter and more conservative framework for Irish money market funds, according to a report from Standard & Poor’s Ratings

A guidance note from the Irish regulator should lead to a stricter and more conservative framework for Irish money market funds, according to a report from Standard & Poor’s Ratings Services.

Standard & Poor’s credit analyst Samira Mensah says: ‘Because Europe lacks standard regulation specifically governing money market funds, comparable to Rule 2a-7 in the US, European money market funds may differ across jurisdictions, exhibiting at times a much wider investment scope than their US equivalents.’

With its Guidance Note 1/08, however, the Irish Financial Services Regulatory Authority (IFSRA) aims to achieve greater harmony across Dublin-domiciled offshore money market funds.

Essentially, the IFSRA has set new requirements for money market funds’ investment scope, ratings, and asset manager expertise, and has clarified permitted valuation techniques.

The IFSRA took into account rating agencies’ fund rating criteria to elaborate its guidance, amounting to an endorsement of those ratings and guidelines.

Standard & Poor’s sees the harmonisation of Dublin-based money market funds as an important step toward ensuring the safety of these funds’ invested principal and liquidity. At the same time, it should help rebuild investor confidence through better transparency.

‘Given the amount of uncertainty and confusion surrounding this asset class as a whole, with certain cash and enhanced cash funds recording negative performance over recent months, we believe that the new Irish regulatory framework for money market funds is a model that other European regulators may decide to consider,’ says Mensah.

The report says the guidance note brings further clarity and transparency for money market fund investors, by providing a stricter and more conservative framework for Irish money market funds than what prevailed previously.

‘The accuracy of valuation for money market fund assets has become critical in the current environment, as investors seek to scrutinize and understand the techniques used to value money market fund holdings,’ adds Mensah. ‘We believe that when liquidity returns to the markets, and administrators adopt best practices, a greater harmonisation in valuation practices will be achieved among European and offshore money market funds.’

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