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Following the difficulties created by the financial crisis, the AMF set up at end-2007 a working group composed of asset management professionals to consider changes to the way that money market funds are regulated.
Based on the group's proposals, the AMF is today putting out a series of measures for public consultation. These measures chiefly involve:- a stricter classification for money market funds;
- new requirements on investor disclosures and product marketing.
Stricter classification for money market funds
The proposal is to maintain a single category, "money market fund", but to restrict the universe of assets in which these funds can invest. The following requirements would be added to the existing criteria for classification in the "money market" category1:- a money market fund cannot hold securities with a maturity of more than two years;
- the average maturity of the securities held by the fund cannot exceed one year;
- exposure to credit risk must be compatible with the low level of overall risk taken on by a money market fund.
Interim measures regarding the entry into force of the maturity requirements are proposed.
Enhanced and clarified investor disclosures
Since the investment horizon in a money market fund can range from a few days to several months, investors must be given information that allows them to distinguish between the different types of fund.
Accordingly, it is proposed that:- the prospectus should provide standardised information enabling easy identification of funds that are suitable for a short-term investment;
- it should not include generalities, either about a fund's assets or about its strategies, that do not make it possible to identify the real performance drivers of the fund or the related risks.
Stricter marketing conditions
Regarding the marketing of money market funds, the AMF's existing "money market" classification should be the main reference. If a proprietary classification were to be used, however, it should avoid names or terms that could confuse
Given that information must be "fair, clear and not misleading", a money market fund cannot be portrayed as totally risk-free. Marketing actions must not veil the fact that riskless returns do not exist; they must also make it clear that a fund offering returns in excess of the money market interest rate corresponding to the recommended investment period, minus management fees, is inevitably riskier than a fund that confines itself to that return.
Responses should be emailed to contact@amf-france.org before 15 April 2009.
1An investment objective pegged to a money market indicator; limited interest rate risk (duration of between 0 and 0.5); no equity exposure.
