Money Market Funds in Ireland Cranes European Money Fund Symposium - PowerPoint PPT Presentation

Money Market Funds in Ireland Crane’s European Money Fund Symposium Pat Lardner, Chief Executive Patrick Rooney, Regulatory Affairs Manager 18 September 2015, Dublin 1

Why Ireland for money market funds (MMFs)? Net assets of MMFs (EUR Billion) 450 400 350 300 250 200 150 100 50 0 Ireland France Luxembourg Source: EFAMA, June 2015 2

Why Ireland for MMFs? • Service provider expertise • Regulatory framework • Tax environment • International distribution (UCITS) • Cost competitiveness MMFs as a proportion of Irish domiciled net assets • 60 Managers MMFs 22% • 18 Administrators • 10 Legal Advisors • 5 Auditors Non- MMFs Source: Monterey Ireland Fund Report 2014 78% Source: Central Bank of Ireland, June 2015 3

Ireland’s MMF industry Net assets of Irish domiciled MMFs 450 400 350 Euro Billions 300 250 200 402 387 359 326 319 310 150 297 288 276 276 213 100 175 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 June-15 Source: Central Bank of Ireland, June 2015 Note: A move to security by security reporting by the Central Bank in December 2014 has resulted in a reclassification of the data for MMFs, which impacts on the reported NAV figures from 2014. 4

Ireland’s MMF industry - Promoters Promoter origin of Irish domiciled MMFs by % of NAV • 164 Irish domiciled MMFs 0% 10% 20% 30% 40% 50% 60% • 19 non-Irish domiciled MMFs US 55% 36% UK MMF assets serviced Non- Germany 7% Domiciled 2% 1% Japan Other 1% Domiciled 98% Source: Monterey Ireland Fund Report 2014 5

Profile of Irish MMFs - Issuers Debt securities assets Debt securities assets by sector of issuer by residence of issuers Ireland Non-Financial 2% Corporates 5% Government Rest of 16% Euro Area 31% Rest Banks Other Financial of 67% Institutions World 12% 67% Source: Central Bank of Ireland, June 2015 6

Profile of Irish MMFs – Underlying Assets Debt securities assets Currency breakdown Short Term Vs. Long Term of assets held Other Long 1% Term 7% Euro 13% Government Rest of 16% Euro Area USD 31% 36% Rest Other Financial of Short Institutions World GBP Term 12% 67% 50% 93% Source: Central Bank of Ireland, June 2015 7

Profile of Irish MMFs - Investor Base Investor base by classification and location as a % of NAV 0% 10% 20% 30% 40% 50% 60% 70% 67% Other Financial Intermediaries Non-Financial Corporations 10% Deposit Taking Corporation 9% Ireland 3% Other Insurance Corporations 7% 11% Investment Funds 4% US 12% Pension Funds 3% Other EU Member States Other 61% Euro Source: Central Bank of Ireland, 2015 Area 13% 8

EU MMF Regulation Position of Irish Funds • Preserve the features of CNAV MMF valued by investors • Retain a vibrant MMF sector in Europe that can meet the needs of investors and continue to provide funding for banks, business and government • Ensure that the important role of MMFs in CMU is recognised • Ensure viable product options for MMF investors and their managers • Address the policy objectives of ensuring a robust regulatory framework for money market funds 9

EU MMF Regulation – the journey so far…. Key proposals relating to CNAVs 2013 2014 2015 2015? European Commission Italian Presidency European Parliament Council of Ministers • 3% capital buffer or • Retail/Small • LVNAV MMF - ACA • Latvian Presidency – mandatory Professional CNAV for assets < 90 days, no material progress MMF – carve out for conversion to CNAV NAV rounded to 2 • Luxembourg certain investor decimals, convert to Presidency – groups VNAV if shadow NAV possible opportunity to deviates by 20 bps, • Low Volatility NAV progress but still very sunset/review clause (LV-NAV MMF) – ACA entrenched positions after 5 years for assets < 90 days, on CNAVs based on • Public Debt CNAV NAV rounded to 3 previous statements MMF – 80% invested decimals, transition to /international VNAV within 2-5 years in EU public debt by recommendations 2020 • Variable Shares MMF • Dutch Presidency ? – Stable NAV but • Retail CNAV MMF - number of shares charities, non-profit adjusted in line with organisations, public market movements authorities and public foundations 10 10

LVNAV MMF • NAV may be rounded to 2 decimal places • Amortised cost accounting may be used for assets with a residual maturity of <90 days • Assets >90 days must be valued at mark-to-market • If actual NAV deviates from the CNAV by more than 20 bps, the NAV must be floated • Sunset clause – Commission review after 4 years; LVNAV authorisations automatically lapse unless the Commission takes action to extend LVNAV • Framework for application of liquidity fees and redemption gates 11 11

Public Debt CNAV • Invest 99.5 % of its assets in public debt instruments • By 2020 invest at least 80 % of its assets in EU public debt instruments • “EU Public Debt instruments” means public debt instruments that are: – cash or government assets of the Member States – reverse repurchase agreements secured with public debt of the institutions of the Union or its bodies, offices or agencies • Framework for application of liquidity fees and redemption gates • European Parliament Impact Assessment concluded that there would be limited take-up of the proposed Public Debt CNAV 12 12

Government securities in Irish MMFs Government securities Government securities: as a % of NAV of Irish MMFs Proportion of Euro Area to other government securities Government Securities 13% Euro Rest of Area World 45% 55% Other Assets 87% Source: Central Bank of Ireland, June 2015 13 13

Retail CNAV • Available for subscription only to: – Charities – Non-profit organisations – Public authorities – Public foundations (No natural persons, pension funds, or accounts where the ultimate beneficiary is a natural person) • Framework for application of liquidity fees and redemption gates • European Parliament Impact Assessment concluded that there would be limited take-up of the proposed Retail CNAV 14 14

Key priorities for Irish Funds • Removal of sunset clause on LVNAV • Removal of requirement to have 80% invested in EU public debt by 2020 – remove any % threshold – inclusion of US and other public debt • Removal of fees and gates on the EU Public Debt MMF • Retail CNAV – inclusion of pension funds • No lower than 20 bps collar on LVNAV • Inclusion of government securities in the liquidity threshold calculation • Extension of the transition period to 24 months • ABCP and securitisation – remove the 397 day maturity restriction and the 10% investment limit of securitisations • Increase of the Repo limit to 20% from current 10% • Other Member States should be able to opt out of authorising CNAVs 15 15

Current discussions and looking forward • Luxembourg Presidency • Council of Ministers position and then trilogues • Entrenched views and principles versus workable compromise • Striking the right balance - FSB, IOSCO, ESRB and Schaeuble- Moscovici letter versus investor requirements, funding needs and CMU objectives 1. Continue to engage with stakeholders: fund promoters, service providers, legal firms, Department of Finance, MEPs, EFAMA, IMMFA 2. Highlight the important role MMFs play for investors and in the economy 3. Provide technical input and industry feedback 16 16

Money Market Funds in Ireland Crane’s European Money Fund Symposium Pat Lardner, Chief Executive Patrick Rooney, Regulatory Affairs Manager 18 September 2015, Dublin 17