The Committee of European Securities Regulators' (CESR) recent consultation on proposals for pan-European definitions of money market funds (MMFs) paves the way towards a convergence of pan-European standards, Fitch Ratings said.
"Fitch notes the movement towards a global convergence in standards for short-term money-market funds based on proposals from regulators globally on funds' interest rate and spread risk exposures," said Charlotte Quiniou, director in Fitch's fund and asset manager rating team. "However, there is less consensus on acceptable spread risk limits for longer-term MMFs. CESR's proposals would position European longer-term MMFs relatively conservatively with regard to proposed limits on portfolio weighted average life and instrument maturity."
CESR and other European market participants propose confining the MMF designation to funds which primary objective is to preserve capital while providing liquidity to investors, and for which yield is of secondary importance.
A consensus also appears to be emerging on the need for a two-tiered classification of European MMFs that would differentiate between very short-term oriented funds and those seeking slightly longer-term exposure, while still following conservative investment guidelines and targeting capital preservation.
If CESR's proposals are adopted, European MMFs should usually qualify for a Fitch MMF rating within the agency's new MMF rating scale.
Short-term MMFs would potentially qualify for 'AAAmmf' ratings and longer-term MMFs for 'AAmmf' or 'Ammf' ratings. This would provide for a comprehensive assessment and differentiation of the spectrum of funds offered in the pan-European MMF universe.