Fund Management

The European Securities and Markets Authority (ESMA) has today issued two sets of guidelines regarding the stress testing of money market funds and reporting on money market funds to national competent authorities (NCAs), aimed at ensuring a coherent application of the Money Market Fund (MMF) Regulation.

The Guidelines on stress testing establish common reference parameters of the stress test scenarios MMFs or managers of MMFs should include in their stress scenarios. The Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that managers of MMFs will transmit to competent authorities as of Q1 2020.

Steven Maijoor, Chair, said:

“Money market funds offer high liquidity at lower risk than other funds, contributing to the funding of banks, governments and corporates. However, due to their important role in the money market, any disruption affecting MMFs may impact financial stability. Stress testing is an important tool to assessing and mitigating potential stability risks.

Our guidance will ensure that the same level of care, risk management, and stress testing is applied across the European MMF sector – allowing investors to benefit from similar safeguards across different countries.”

MMFs need to report their stress test results by 2020

MMFs and managers of MMFs are expected to measure the impact of the common reference stress test scenarios specified in the Guidelines, the results of which should be shared with regulators through the reporting template with their first quarterly reports for Q1 2020. Therefore, the Guidelines include stress test scenarios in relation to hypothetical changes in MMFs’:

  • liquidity levels;
  • credit and interest rate risks;
  • redemptions levels;
  • widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied; and
  • macro-economic shocks

The guidelines will be updated at least every year and will take into account the latest market developments. The current guidelines include the calibration of the stress test scenarios for 2019.

The European Securities and Markets Authority (ESMA) launched today a public consultation on draft guidelines on performance fees under the Undertakings for Collective Investments in Transferable Securities (UCITS) Directive. 

ESMA’s draft guidelines aim to harmonise the way in which performance fees can be charged to the UCITS and its investors while ensuring common standards of disclosure, as current practices vary among EU Member States.

Steven Maijoor, ESMA Chair, said:

“Costs are vital to successful investments and especially so when investing in UCITS. Performance fees are a key feature both for investors and funds alike. However, different practices exist, creating undue risks of regulatory arbitrage and inconsistent levels of investor protection. 

Considering the importance of cross-border distribution for UCITS, ensuring greater supervisory convergence regarding performance fees is essential.”

ESMA’s draft guidelines propose common criteria to promote supervisory convergence in the following areas:

  • general principles on performance fee calculation methods;
  • consistency between the performance fee model and the fund’s investment objectives, strategy and policy;
  • frequency for the performance fee crystallisation and payment;
  • the circumstances where a performance fee should be payable; and
  • disclosure of the performance fee model.

ESMA is seeking stakeholders’ feedback on the proposals made in the above areas as well as on whether the principles set out in the Guidelines should also be applied to Alternative Investment Funds (AIFs) marketed to retail investors.

The proposed guidelines follow a mapping exercise ESMA conducted in 2018 among national competent authorities (NCAs), which analysed the current national practices for key aspects of performance fees, revealing a lack of harmonisation among EU jurisdictions.


ESMA’s draft guidelines aim to further clarify the provisions of the UCITS Directive, which requires Member States to ensure that a management company acts honestly and fairly in conducting its business activities in the best interests of the UCITS it manages and the integrity of the market. This includes the prevention of undue costs being charged to the UCITS and its unit holders.

In developing its draft guidelines, ESMA also considered the Good Practice for Fees and Expenses of Collective Investment Schemes by the International Organization of Securities Commissions (IOSCO).

Next steps

ESMA will consider the feedback it receives to this consultation in Q4 2019 with a view to finalising the guidelines for publication afterwards.


Responding to this paper

ESMA invites comments on all matters in this paper and in particular on the specific questions summarised in Annex I. Comments are most helpful if they:

  • respond to the question stated;
  • indicate the specific question to which the comment relates;
  • contain a clear rationale; and
  • describe any alternatives ESMA should consider.

ESMA will consider all comments received by 31/10/2019.