As part of the revised Undertakings for Collective Investment in Transferable Securities (UCITS) Directive in Europe, the European Securities and Markets Authority (ESMA) has published a Q&A document that details its guidelines for regulators regarding common definitions for the supervision of money market funds. The paper is aimed at getting European regulators in synch with regards to the treatment of these instruments across the region and to this end, includes information about the expected treatment of ratings (internal and external), details of semantics related to these funds and ESMA’s expectations for firms’ treatment of these instruments.
As stated by ESMA in the document: “The Q&A mechanism is a practical convergence tool used to promote common supervisory approaches and practices under Article 29(2) of the ESMA Regulation.” As such, it is a living document and any further questions or requests for clarification can be added by emailing email@example.com.
The Q&A currently highlights items such as ESMA’s expectations in terms of a management company’s internal rating process; the treatment of instruments with only long term ratings and those that have not been rated; and the definition of what constitutes a “recognised credit rating agency,” among other things. It also provides technical details with regards to the calculation of various aspects of money market funds’ structures, such as the weighted average maturity of the fund or its weighted average life.
ESMA has spent a large part of this year delving into the data related details of various pieces of legislation and, with regards to UCITS, it is an extension of the work carried out by its predecessor last year. The European level regulator has also spent a considerable amount of time, along with the rest of the global regulatory community, consulting on the subject of credit ratings agency as part of the crackdown on the sector.