FCA update on reforms to the UK Money Market Fund Regulation
Executive Summary
The FCA has confirmed its *updated approach* to UK money market fund (MMF) reforms, signalling that most detailed MMF requirements will move from retained EU law into FCA rules and guidance, with a new overarching “adequate resilience” liquidity rule and revised expectations for weekly liquid assets (WLA). The key compliance implication is a shift from hard, uniform liquidity minima to a combination of existing regulatory minima plus *supervisory expectations* of 40% WLA for stable NAV MMFs and 20% WLA for variable NAV MMFs, alongside confirmation that “delinking” and enhanced KYC measures will proceed.
What Changed
- - The FCA will introduce a new overarching rule requiring that all UK‑domiciled MMFs must hold sufficient liquidity for “adequate resilience”, explicitly linking fund liquidity to financial stability and market integrity objectives.
- The FCA will retain the current minimum WLA requirements from the existing UK Money Market Fund Regulation (UK MMFR) in its rules, instead of the previously consulted increases to 50% WLA for all MMFs.
- The FCA will issue guidance setting out strong supervisory expectations that stable NAV MMFs should hold 40% WLA and variable NAV MMFs should hold 20% WLA to meet the new resilience requirement, moving away from a single 50% WLA standard.
- The FCA makes clear that falling below the 40%/20% WLA supervisory expectations should only occur to meet redemption requests or due to factors beyond the manager’s control, and should be rare, with an explicit indication that MMFs should not routine
- The FCA will retain existing minimum daily liquid asset (DLA) requirements from UK MMFR in rules and does not plan to issue new guidance on DLA levels, but expects DLA and WLA together to be sufficient for “adequate resilience.”
- The FCA intends to implement “delinking” by removing the regulatory linkage between breaches of minimum liquidity thresholds and the obligation for stable NAV MMF managers to consider or impose liquidity fees or redemption gates, to improve the usabi
Suggested Considerations
- Conduct a comprehensive gap analysis comparing current MMF liquidity management frameworks (DLA, WLA, and stress‑testing assumptions) against the forthcoming FCA “adequate resilience” rule and the 40% (stable NAV) / 20% (variable NAV) WLA supervisory expectations.
- Update MMF liquidity policies, board‑approved risk appetites, and internal limits to reflect the new WLA expectations, including documentation of when and how funds may temporarily operate below 40%/20% WLA and the governance required to approve such deviations.
- Implement enhancements to liquidity monitoring and MI reporting so that portfolio managers, risk, and compliance have near‑real‑time visibility of DLA and WLA levels, breaches of internal and supervisory thresholds, and redemption‑driven use of liquidity buffers.
- Review and update fund prospectuses, KIIDs/KIDs, and investor disclosures to ensure that descriptions of MMF liquidity management, the availability of liquidity management tools, and the operation of stable NAV structures are accurate under the new FCA regime.
- Revise and strengthen investor KYC procedures for MMFs to capture concentration risks and potential correlated outflows, including segmentation of investor types, monitoring of large holders, and scenario analysis around key client redemption behaviour.
- Update MMF stress‑testing frameworks to incorporate the Bank of England‑informed scenarios used by the FCA, including revised assumptions on redemption patterns, alternative liquidity sources, and the interaction between outflows and WLA/DLA usage.
Key Dates
Compliance Impact
Non‑compliance with the new FCA MMF rules and supervisory expectations is likely to be treated as a significant prudential and conduct issue, exposing firms to supervisory intervention, potential restrictions on MMF operations, and enforcement action where governance or disclosure failures are identified. Given the explicit financial stability focus of these reforms, regulators can be expected to
Who is Affected
References
AI-generated analysis. May contain errors or omissions — verify with the original FCA source before acting. Full disclaimer.
Summary
We set out next steps on issuing new rules and guidance on Money Market Funds (MMFs), following Government plans to replace the current rules. On 15 May, the Government set out its expectation that it will lay legislation that will replace the UK Money Market Funds Regulation. Read the Government statement.Money Market Funds (MMFs) play an important role in the financial system. MMFs are widely used for cash management and provide an alternative or complement to bank deposits for a broad rang...