Peer Review of Regulation of Money Market Funds: Report of Key Preliminary Findings to the G20 Leaders' Summit THE BOARD OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS PR03/2014 NOVEMBER 2014 Contents Section Page 1 Executive Summary 1 2 Introduction 1 3 Methodology 2 4 Summary of Key Preliminary Findings 4 Annexure A 15 Page 1 of 16 1. Executive Summary This report (Report) sets out the key preliminary findings of the review (Review) by the International Organisation of Securities Commissions (IOSCO) of the progress in adopting legislation, regulation and other policies in relation to money market funds (MMFs) in the following areas (Reform Areas):1 a. Scope of the regulatory reform — explicit definition of MMFs in regulation and appropriate inclusion of other investment products presenting features and investment objectives similar to MMFs; b. Limitations to the types of assets of, and risks taken by, MMFs; c. Valuation practices of MMFs — addressing specific valuation issues for MMFs and their portfolios; d. Liquidity management for MMFs — aimed at ensuring MMFs maintain adequate liquidity resources in normal business conditions as well as in stressed market conditions; e. MMFs that offer a stable Net Asset Value (NAV) — addressing the risks and issues which may affect the stability of MMFs that offer a stable NAV; f. Use of ratings by the MMF industry; g. Disclosure to investors; and h. Repos — MMF practices in relation to repurchase agreement transactions. The key preliminary findings set out in this Report are made solely on the basis of the self-assessments provided by participating jurisdictions. For the purposes of preparing the Report, neither the self-assessed ratings nor the supporting information provided by the participating jurisdictions have been independently verified. The only revisions made were to ensure the reporting scale as it relates to the date on which measures took effect is consistent with other information provided in the self-assessment. The key preliminary findings set out in this Report are therefore subject to confirmation (and possible change) by the Review Team following the preparation of a second, more detailed final report and analysis, which will be published in Q2 2015. Participating jurisdictions were given an opportunity to confirm the way their self-assessments have been reported in this Report, although not all participating jurisdictions had done so at the time of preparing this Report. This Report was prepared by a team comprising staff from the Australian Securities and Investments Commission, Autorité des marchés financiers (France), US Securities and Exchange Commission, Securities and Exchange Board of India, Japan Financial Services Agency, Brazil Comissão de Valores Mobiliários and the IOSCO General Secretariat (Review Team). The Review Team is chaired by the Australian Securities and Investments Commission. 2. Introduction 2.1. IOSCO Policy Recommendations for Money Market Funds The run on some MMFs during the recent financial crisis alerted regulators to their systemic relevance. Although MMFs did not cause the recent financial crisis, the crisis highlighted their 1 As detailed further below, IOSCO published 15 key policy recommendations relating to these 8 Reform Areas in 2012. Page 2 of 16 potential to spread or even amplify a financial crisis. The G20 expressed concerns regarding the stability of the MMF industry and the risks it may pose to the broader financial system. The Financial Stability Board (FSB) requested that IOSCO undertake a review of potential regulatory reforms of MMFs as part of efforts to strengthen the oversight and regulation of the shadow banking system and to carry out the G20 endorsed objective to mitigate the susceptibility of MMFs to runs and other systemic risks (G20 Objective). In 2012, in response to the FSB request and to advance the G20 Objective, IOSCO, through Committee 5 on Investment Management (C5), undertook a project to analyse the risks that MMFs pose to financial stability and develop a range of policy recommendations to address those risks, to be considered by IOSCO members as they develop standards for the regulation and management of MMFs, consistent with their statutory or legal or other powers. C5 considered there was a need for regulatory reform in the Reform Areas. In October 2012, IOSCO published its report Policy Recommendations for Money Market Funds (2012 IOSCO Report),2 which contains 15 key policy recommendations relating to the Reform Areas.3 The 2012 IOSCO Report noted that IOSCO would cond