On 20 July 2023, the European Commission released its formal report to the European Parliament and the Council regarding the adequacy of Regulation (EU) 2017/1131 (MMFR). The report assesses the regulation's performance since its application in January 2019, concluding that the framework successfully passed tests during the COVID-19 stress of March 2020 and subsequent interest rate increases.

Although no EU MMF was required to activate redemption fees or gates during these events, the review nevertheless identifies several areas where sector resilience could be further strengthened. This focus is driven by structural vulnerabilities observed in broader short-term funding markets that rely heavily on dealer intermediation and where transparency during periods of stress may remain limited.

Core Findings and Strategic Monitoring Areas

  • Decoupling Liquidity Thresholds: A major area for future assessment is decoupling the activation of Liquidity Management Tools (LMTs) from regulatory liquidity thresholds to prevent potential 'threshold effects' that drive redemptions.
  • Systemic Risk Oversight: Reporting remains the primary tool for supervisors to monitor the 'flight-to-quality' dynamics, such as the shift from USD-denominated LVNAVs to USD Public Debt CNAVs observed in early 2020.
  • Short-Term Market Transparency: The review highlights that secondary market opacity in commercial papers and certificates of deposit makes price discovery challenging for MMFs during stress.
  • Accounting and Valuation: While bodies like the FSB and ESRB have proposed removing amortized cost for LVNAVs to reduce 'deposit-like' features, the Commission notes this could limit cash-management options for non-financial corporates.
  • Investor Profile Insights: Enhanced monitoring of professional investors is critical, as they hold the vast majority (95-99%) of CNAV and LVNAV shares and are more sensitive to liquidity metrics.

The review cautions that the resilience shown by MMFs in 2020 must be viewed in the context of unprecedented central bank interventions, which indirectly stabilized MMF markets by restoring confidence in underlying short-term debt instruments.

Looking forward, EU MMFs are expected to benefit from the ongoing reviews of the AIFMD and UCITS Directives, which will introduce harmonized rules for the availability of LMTs. This evolution ensures reporting remains a dynamic tool for policy decisions and systemic risk monitoring across the single market.