ESMA launched a consultation on the draft guidelines on stress test scenarios under the Regulation on Money Market Funds (MMFs). Stakeholder views are sought, especially on the draft methodology, risks factors, data, and the impact calculation. The consultation is open for comments until December 01, 2018. ESMA will use the feedback received to finalize its guidelines in the first quarter of 2019.
The MMF Regulation requires managers of MMFs to conduct regular stress tests as part of their risk management and regulatory disclosure. Funds must put in place sound stress testing processes, including identifying stress events, or future changes in economic conditions, and assess the impact these different scenarios may have on (the net-asset-value and/or liquidity of) the MMF. To coherently capture the risks of MMFs, ESMA has developed these draft guidelines for stress testing. This consultation paper is the first step in developing detailed specifications for these stress tests by proposing common parameters and scenarios that take into account the following hypothetical risk factors:
- Liquidity changes of the assets held in the portfolio of the MMF
- Credit risk, including credit events and rating events
- Changes in interest and exchange rates
- Redemptions and spread changes of indexes to which interest rates of portfolio securities are tied
- Macro-economic shocks
The final guidelines will include the calibration of the stress testing scenario for implementation. The guidelines are to be updated annually, based on the latest market developments. In March 2018, ESMA had published its 2017 guidelines on stress tests for MMFs, which will be updated following this consultation so that managers of MMFs have the information needed to fill-in the required fields in the reporting template. .
Comment Due Date: December 01, 2018
Keywords: Europe, EU, Banking, Asset Management, MMF Regulation, Money Market Funds, Stress Testing, Guidelines, ESMA
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The French Prudential Control and Resolution Authority (ACPR) published the corrective version of the RUBA taxonomy Version 1.0.1, which will come into force from the decree of January 31, 2022.
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.