The Institute of International Finance (IIF) submitted a response to the Financial Stability Board (FSB) Consultation Report on the topic of “Policy Proposals to Enhance Money Market Fund Resilience” on August 13.
In its response letter, the IIF commends the work to date on the initiatives of the FSB and other global standard setters for the NBFI sector. These efforts have contributed significantly to the mitigation of risks identified in the Great Financial Crisis and to the resilience of MMFs and short-term funding markets (STFMs). However, the unprecedented COVID-19 crisis has revealed some further structural vulnerabilities in MMFs and STFMs that should be addressed through a holistic review of the impact of market structure on the resilience of MMFs and STFMs.
The IIF believes that a holistic review of the MMF sector, the underlying STFMs, and market participants, and a careful assessment of the impacts of policy proposals on each of these constituent groups could produce targeted and proportionate measures that address the root causes of market instability in order to mitigate future disruptions similar to the March 2020 market turmoil.
The IIF recognizes that MMF market and product structure differences may make it difficult to implement fully harmonized global standards for MMFs. However, it may be possible to achieve some level of harmonization in respect of reforms that address issues that are similar across jurisdictions (e.g., the decoupling of regulatory thresholds and redemption fees) and in adopting some common terminology with the goal of facilitating a common language among regulators and market participants.
The response letter also includes IIF’s response to the 18 questions raised in the consultation report.