IOSCO and FSB Recommend Additional Money Market Fund Reform, Putting International Pressure on the SEC to Take Action

January 04, 2013
The International Organization of Securities Commissions (IOSCO), an international organization of securities regulators, recently published its “Policy Recommendations for Money Market Funds” (Final Report). In the Final Report, IOSCO outlined 15 recommendations (the Recommendations) that seek to provide common standards for the regulation of money market funds (money funds) across jurisdictions and to augment existing regulatory frameworks. Most notably, IOSCO recommended that, in jurisdictions where money funds are offered at a stable net asset value (NAV) per share, such as in the U.S., regulators either: (i) require that, where workable, money funds issue and redeem their shares at a floating NAV per share; or (ii) impose additional safeguards to reinforce stable NAV money funds’ resilience and ability to withstand significant redemptions (Recommendation 10).

Although a member of IOSCO, the U.S. Securities and Exchange Commission (SEC) did not support the Final Report. However, since the issuance of the Final Report, the SEC has faced growing international pressure to consider reforms similar to those recommended in the Final Report. IOSCO discussed the Final Report with the G20 Finance Ministers at a meeting held on November 5, 2012. On November 19, 2012, the Financial Stability Board (FSB), an international organization of regulators established after the G20 Leaders Summit of April 2009, endorsed IOSCO’s recommendations, including Recommendation 10, in its final report “Strengthening Oversight and Regulation of Shadow Banking” (FSB Report).

This OnPoint provides background on the Final Report and compares the IOSCO Recommendations, including Recommendation 10, to the requirements of Rule 2a-7 under the Investment Company Act of 1940 (1940 Act), the primary rule regulating U.S. money funds, and other rules governing U.S money funds.