Money Market Funds in Ireland Crane s European Money Fund Symposium Pat Lardner, Chief Executive Patrick Rooney, Regulatory Affairs Manager 18 September 2015, Dublin 1
Why Ireland for money market funds (MMFs)? 450 Net assets of MMFs (EUR Billion) 400 350 300 250 200 150 100 50 0 Ireland France Luxembourg 2 Source: EFAMA, June 2015
Why Ireland for MMFs? Service provider expertise Regulatory framework Tax environment International distribution (UCITS) Cost competitiveness MMFs as a proportion of Irish domiciled net assets MMFs 22% Non- MMFs 78% 60 Managers 18 Administrators 10 Legal Advisors 5 Auditors Source: Monterey Ireland Fund Report 2014 3 Source: Central Bank of Ireland, June 2015
Euro Billions Ireland s MMF industry 450 Net assets of Irish domiciled MMFs 400 350 300 250 200 150 276 326 319 310 359 288 297 276 387 402 100 175 213 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 June-15 Source: Central Bank of Ireland, June 2015 Note: A move to security by security reporting by the Central Bank in December 2014 has resulted in a reclassification of the data for MMFs, which impacts on the reported NAV figures from 2014. 4
Ireland s MMF industry - Promoters Promoter origin of Irish domiciled MMFs by % of NAV US 0% 10% 20% 30% 40% 50% 60% 55% 164 Irish domiciled MMFs 19 non-irish domiciled MMFs UK 36% MMF assets serviced Germany 7% Non- Domiciled 2% Japan 1% Other 1% Domiciled 98% Source: Monterey Ireland Fund Report 2014 5
Profile of Irish MMFs - Issuers Debt securities assets by residence of issuers Debt securities assets by sector of issuer Ireland 2% Non-Financial Corporates 5% Rest of World 67% Rest of Euro Area 31% Government 16% Other Financial Institutions 12% Banks 67% Source: Central Bank of Ireland, June 2015 6
Profile of Irish MMFs Underlying Assets Debt securities assets Short Term Vs. Long Term Currency breakdown of assets held Long Term 7% Other 1% Rest of World 67% Rest of Euro Area 31% Short Term 93% Government 16% USD 36% Other Financial Institutions 12% Euro 13% GBP 50% Source: Central Bank of Ireland, June 2015 7
Profile of Irish MMFs - Investor Base Investor base by classification and location as a % of NAV 0% 10% 20% 30% 40% 50% 60% 70% Other Financial Intermediaries 67% Non-Financial Corporations 10% Deposit Taking Corporation Insurance Corporations 7% 9% Other 11% Ireland 3% Investment Funds Pension Funds 4% 3% US 12% Source: Central Bank of Ireland, 2015 Other Euro Area 13% Other EU Member States 61% 8
EU MMF Regulation Position of Irish Funds Preserve the features of CNAV MMF valued by investors Retain a vibrant MMF sector in Europe that can meet the needs of investors and continue to provide funding for banks, business and government Ensure that the important role of MMFs in CMU is recognised Ensure viable product options for MMF investors and their managers Address the policy objectives of ensuring a robust regulatory framework for money market funds 9
EU MMF Regulation the journey so far. Key proposals relating to CNAVs 2013 2014 2015 2015? European Commission 3% capital buffer or mandatory conversion to CNAV Italian Presidency Retail/Small Professional CNAV MMF carve out for certain investor groups Low Volatility NAV (LV-NAV MMF) ACA for assets < 90 days, NAV rounded to 3 decimals, transition to VNAV within 2-5 years Variable Shares MMF Stable NAV but number of shares adjusted in line with market movements European Parliament LVNAV MMF - ACA for assets < 90 days, NAV rounded to 2 decimals, convert to VNAV if shadow NAV deviates by 20 bps, sunset/review clause after 5 years Public Debt CNAV MMF 80% invested in EU public debt by 2020 Retail CNAV MMF - charities, non-profit organisations, public authorities and public foundations Council of Ministers Latvian Presidency no material progress Luxembourg Presidency possible opportunity to progress but still very entrenched positions on CNAVs based on previous statements /international recommendations Dutch Presidency? 10
LVNAV MMF NAV may be rounded to 2 decimal places Amortised cost accounting may be used for assets with a residual maturity of <90 days Assets >90 days must be valued at mark-to-market If actual NAV deviates from the CNAV by more than 20 bps, the NAV must be floated Sunset clause Commission review after 4 years; LVNAV authorisations automatically lapse unless the Commission takes action to extend LVNAV Framework for application of liquidity fees and redemption gates 11
Public Debt CNAV Invest 99.5 % of its assets in public debt instruments By 2020 invest at least 80 % of its assets in EU public debt instruments EU Public Debt instruments means public debt instruments that are: cash or government assets of the Member States reverse repurchase agreements secured with public debt of the institutions of the Union or its bodies, offices or agencies Framework for application of liquidity fees and redemption gates European Parliament Impact Assessment concluded that there would be limited take-up of the proposed Public Debt CNAV 12
Government securities in Irish MMFs Government securities as a % of NAV of Irish MMFs Government Securities 13% Government securities: Proportion of Euro Area to other government securities Other Assets 87% Rest of World 55% Euro Area 45% Source: Central Bank of Ireland, June 2015 13
Retail CNAV Available for subscription only to: Charities Non-profit organisations Public authorities Public foundations (No natural persons, pension funds, or accounts where the ultimate beneficiary is a natural person) Framework for application of liquidity fees and redemption gates European Parliament Impact Assessment concluded that there would be limited take-up of the proposed Retail CNAV 14
Key priorities for Irish Funds Removal of sunset clause on LVNAV Removal of requirement to have 80% invested in EU public debt by 2020 remove any % threshold inclusion of US and other public debt Removal of fees and gates on the EU Public Debt MMF Retail CNAV inclusion of pension funds No lower than 20 bps collar on LVNAV Inclusion of government securities in the liquidity threshold calculation Extension of the transition period to 24 months ABCP and securitisation remove the 397 day maturity restriction and the 10% investment limit of securitisations Increase of the Repo limit to 20% from current 10% Other Member States should be able to opt out of authorising CNAVs 15
Current discussions and looking forward Luxembourg Presidency Council of Ministers position and then trilogues Entrenched views and principles versus workable compromise Striking the right balance - FSB, IOSCO, ESRB and Schaeuble- Moscovici letter versus investor requirements, funding needs and CMU objectives 1. Continue to engage with stakeholders: fund promoters, service providers, legal firms, Department of Finance, MEPs, EFAMA, IMMFA 2. Highlight the important role MMFs play for investors and in the economy 3. Provide technical input and industry feedback 16
Money Market Funds in Ireland Crane s European Money Fund Symposium Pat Lardner, Chief Executive Patrick Rooney, Regulatory Affairs Manager 18 September 2015, Dublin 17