BRUSSELS (Reuters) - European Union member states have agreed rules on money market funds, the bloc’s financial services commissioner said on Tuesday, ending three years of deadlock with a compromise that will force half the industry to lay off various risks.
The trillion-euro money-market funds industry in Europe provides day-to-day funding to thousands of corporate and sovereign borrowers by buying short-term debt, and is blamed for having being one of the causes of the 2007-08 financial crisis.
EU regulators had tried to ban the constant net asset value (CNAV) funds, which account for half of the market and whose share price is maintained at a set level regardless of market movements, exposing them to a greater risk of bankruptcy.
The deal would give CNAV funds the option of investing in lower-risk products or becoming safer variable net asset value (VNAV) funds within two years of the new rules being adopted, a draft of the proposed regulation, seen by Reuters, said.
“The Council reached an agreement on money market funds,” EU commissioner Jonathan Hill told the economic affairs committee.
An official said that the draft law, prepared by the Netherlands which holds the rotating EU presidency, will be formally adopted by EU envoys on Wednesday and endorsed by finance ministers on June 17 at a regular meeting in Luxembourg.
Germany wanted CNAV to be phased out but countries with a strong fund industry presence - such as Ireland, Luxembourg and Britain - opposed that.