Revision of the definition of European money market funds

ESMA Opinion 2014/1103 (the "Opinion") aims at amending the guidelines issued by CESR (CESR/10-049) in 2010 on a common definition of European money market funds (the "2010 Guidelines"). Management companies which manage European money market funds (as defined in the 2010 Guidelines and hereinafter referred to as "MMF") can no longer rely solely on the external credit rating given by recognised rating agencies to assess the credit quality of the money market instrument ("MMI") in which a MMF wishes to invest but are required to make their own assessment of the credit quality of this MMI.

In addition, while there should be no mechanistic reliance on such external credit ratings, a downgrade, by any recognised agency, below the two highest short-term credit ratings for short term MMI (paragraph 7 of the Opinion), and below investment grade or equivalent for sovereign issuance (paragraph 8 of the Opinion), should trigger a new assessment of the credit quality of the MMI.

This change occurs in the context of the application of a European regulation commonly called "CRA3" (CRA stands for Credit Rating Agency), specifically Regulation (EU) 462/2013 on credit rating agencies and Directive 2013/14/EU on over- reliance on credit ratings (see the information on this Directive below).