In a letter dated 27th August 2020, ESMA announced that ESMA’s 2019 guidelines for stress test scenarios for Money Market Funds (MMFs) will be updated in light of recent market developments.
ESMA notes that the COVID-19 crisis has been challenging for MMFs and that a number of EU MMFs have faced significant liquidity issues during the period of acute stress in March 2020.
ESMA has found that applying the scenarios in the 2019 guidelines in the current market environment generally leads to absolute levels of stress similar to the levels observed in March. However, for some parameters (notably the redemption scenario) the scenarios have been exceeded by extreme market movements observed during the COVID-19 crisis. The relevant factors applicable to such scenarios will be updated accordingly.
ESMA expects to publish the 2020 update of the guidelines in Q4 2020. There will be no public consultation on the update. ESMA has confirmed that the 2019 guidelines and scenarios set out therein will continue to apply until the 2020 updated version of the guidelines applies.