AMF strengthens money market fund resilience

The Financial Markets Authority (AMF) issued new recommendations on October 30 to improve the ability of money market funds to withstand large-scale redemptions. These guidelines focus on maintaining sufficient liquidity reserves to meet investor demands during market stress.

Liquidity thresholds vary by fund type

The AMF established different liquidity targets for various types of money market funds. Variable net asset value (VNAV) funds must hold 20% of weekly liquid assets, up from the regulatory minimum of 15%. For constant net asset value funds and low volatility funds, the threshold is 40%, compared to a 30% minimum. These figures indicate the portion of assets that can be quickly converted into cash within a week.

Recommendations do not change legal minimums

The 20% and 40% thresholds are not new legal requirements but recommendations for stronger resilience. The AMF's DOC-2026-07 doctrine, effective from October 30, outlines supervisory expectations for companies managing French-domiciled money market funds. It does not alter the existing European regulatory framework.

Regulators monitor liquidity deviations

If a fund’s liquidity level drops below the recommended threshold for ten business days or if a prolonged deviation is expected, managers must inform the regulator. They may provide results from crisis simulations that test the fund’s ability to handle redemptions or market stress. The AMF may then increase its oversight based on the risk level.

European regulators collaborate on guidelines

The French recommendations are part of a coordinated effort with Luxembourg and Ireland, which also issued their own guidelines on October 30. While all three regulators are working together, each has its own timeline for implementation. These efforts follow the European Commission’s 2020 regulations, aimed at addressing market tensions observed during the pandemic.

Money market funds carry inherent risks

Money market funds are used by businesses, institutions, and some individuals to manage liquidity. While they aim for low volatility, they still carry market and liquidity risks. A reserve of easily accessible assets can help during redemptions, but it does not guarantee capital protection or offer the same security as bank deposits. Investors should review a fund’s documentation for details on its structure, risks, and redemption policies.