ESMA consults on a new approach to updating MMF stress test parameters

The European Securities and Markets Authority (ESMA) has launched a consultation on a new approach to updating the parameters for stress test scenarios under the Money Market Funds (MMF) Regulation. Under the MMF Regulation, ESMA is required to develop guidelines establishing common reference parameters of the stress test scenarios to be included in the stress tests that MMFs or managers of MMFs are required to conduct and update these guidelines annually based on the input provided by the European Systemic Risk Board (ESRB).

ESMA proposes to replace the annual update of the parameters included in the guidelines (section 5 of the guidelines that includes the calibrations) with an annual update of a dedicated page on the ESMA website where the parameters would be made available. This approach is intended to streamline the update of the parameters, improve accessibility for MMF managers across the EU, and provide greater flexibility in terms of timing, as the new parameters would be immediately available and applicable without waiting for the translations of the guidelines to be finalised. The guidelines would continue to set out the framework and methodology for MMF stress testing, while the ESMA webpage would exclusively be used to publish the updated annual calibration of the parameters. From a supervisory perspective, the change would allow market participants to use the new set of parameters closer to the publication of the related ESRB scenario and reduce the risk of discrepancies. The change is also intended to reduce burden and simplify the process for ESMA and national competent authorities, in line with ESMA's simplification and burden reduction initiative.

The deadline for comments is 6 August. ESMA expects to publish a final report in the second half of the year, with the new procedure for the update of the parameters applying from the next update of these parameters, anticipated at the end of the year.

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