Treasury Outlines Areas for Money Fund Reform; SEC Requests Comments

The President’s Working Group on Financial Markets  released a report in December on potential reform options for money market funds. A client alert from Dechert discusses the report and its recommendations in detail. The U.S. Treasury report states that the market stresses and significant outflows experienced last March by prime and tax-exempt money market funds highlights the need for further regulatory reforms beyond those enacted after the 2008 financial market crisis. “Because prime and tax-exempt MMFs again have shown structural vulnerabilities that can create or transmit stress in short-term funding markets, it is incumbent upon financial regulators to examine the events of March 2020 closely, and in particular the role, operation, and regulatory framework for these MMFs, with a view toward potential improvements,” the report stated. The report recommends actions to address systemic risks and the structural vulnerabilities of money market funds. The SEC’s Division of Investment Management requested feedback from industry participants on the report’s recommendations.  The report proposed ten reforms, which are discussed in detail by the Dechert lawyers, and which include: removal of the link between money fund liquidity and fee and gate thresholds; reform of the conditions for imposing redemption gates; imposition of a minimum balance-at-risk; and floating net asset value requirements for all prime and tax-exempt money funds.