Britain is set to implement stricter regulations on money market funds (MMFs) later this year, a move stemming from the sector’s vulnerability during the March 2020 “dash for cash” crisis. The government announced on Thursday that new legislation will establish a regulatory framework expecting the £300 billion sterling money market fund sector to hold greater liquid assets. These reforms are designed to bolster the resilience of the broader non-bank financial sector, which experienced heavy redemptions during the COVID-19-induced market turmoil.
Regulators have been keenly focused on MMFs since the 2020 events. The Bank of England (BoE) has consistently highlighted that money market funds are susceptible to stress periods, as investors can withdraw cash more rapidly than less liquid assets can be sold. In its latest Financial Stability Report, the BoE warned that this mismatch could trigger runs, amplifying market shocks and potentially tightening financial conditions across the wider economy. Britain’s financial regulator consulted on these reforms in 2023, aiming to facilitate asset sales for funds during times of stress.
The government stated that the Financial Conduct Authority (FCA) will soon release further details on these plans. The proposed changes are subject to parliamentary approval and are intended to account for the cross-border nature of the MMF sector. Coinciding with Britain’s efforts, the European Commission also recently published new guidance for money market funds, outlining how liquidity buffers should be utilised to meet redemption requests amidst market stress. Additionally, Britain plans to extend a temporary permission allowing EU funds to market to British investors, which was slated to expire by year-end.
