PWC on SEC's MMF Rule
PricewaterhouseCoopers (PWC) Ireland issued a News update entitled, "10 key points from the SEC's final US Money Market Fund rule - No major surprises, but big open questions." The first three points are called "impacts" from the reforms: "1. Potential structural changes within MMF industry. The floating NAV requirement may drive institutional prime MMF shareholders to move their cash to government MMFs or non-MMF alternatives that offer reasonable principal protection and slightly higher yield. This would likely cause industry repositioning as traditional sponsors -- and new market entrants -- innovate new products to meet investors' short-term cash management needs. Furthermore, institutional prime MMF advisers may decide that Rule 2a-7's risk-limiting provisions for MMFs are not worth the headaches without the stable NAV their funds have traditionally enjoyed. 2. Implementation challenges. MMFs and their sponsors will need to make necessary operational and compliance modifications to their systems and controls in order to implement floating NAV and fees/gates requirements by mid-2016. Two years may appear to be a long time, but in our view the challenges are significant (several comments on the proposed rule from key industry participants asserted that three years was a more reasonable implementation period). The SEC's Division of Investment Management has formed a working group to monitor the rule's impact and consider pragmatic solutions to assist with implementation challenges. There may be opportunities for engagement with SEC staff to work through these issues. 3. Will the reforms work? Until the next market crisis, it is difficult to know if the rule will achieve the objective of stabilizing MMFs, deterring investor runs, and preventing systemic ripple effects on other funds and financial asset prices - all without undermining the popularity of the $3 trillion industry among retail and individual investors. This is a clear concern of the industry who commented heavily on the proposal and of the regulators who made several changes to the proposed rule in response." The next 6 points are called "key changes from the proposals." They include: 4. Reduced flexibility for government money market funds, 5. Retail MMF definition improved, 6. More flexibility for MMF boards when imposing fees/gates, 7. Amortized cost accounting remains for retail and government funds, 8. Refined stress testing, and 9. Modest relief for municipal MMFs. The 10th point is: "10. SEC to share the spotlight with industry, investors, and ... FSOC (again). MMF advisers and other service providers will begin assessing the rule's major impacts on systems, reporting, technology, and board communications. Meanwhile, investors -- especially institutional investors -- will evaluate the desirability of MMFs as their default home for short-term cash. Finally, the Financial Stability Oversight Council (FSOC), which has long been vocal on the need for MMF reform, will be weighing in on the sufficiency of the SEC's new reforms and providing clues as to whether the rule will impact its next steps for designating certain asset managers as systemically important. It remains to be seen whether the European Commission will align itself with the changes to be implemented in the US, or whether the two regulatory regimes ultimately will differ substantially." PWC writes, "The clock is now ticking MMFs have two years to implement the floating NAV and fees/gates requirements. MMFs also have 18 months to implement additional requirements for diversification, stress testing, disclosure, and reporting (Form PF and Form N-MFP), and nine months to implement requirements for reporting material events on a new Form N-CR." Note: Report authors Ken Owens and Sarah Murphy from PwC Dublin will be presenting on "Tax, Accounting, and Floating NAV Issues at Crane's European Money Fund Symposium, Sept. 22-23 in London.
