The EU’s regulatory framework for money market funds (MMFs) continues to function well overall, according to a Commission report that analysed the sector’s reaction to events over recent years. Nevertheless, the Commission has found that the market can benefit from additional guidance to provide further clarity and enhance resilience, which has been adopted in the form of frequently asked questions (FAQs).
MMFs play a key role in the EU’s financial system by providing short‑term financing through high‑quality, low‑risk debt instruments. They serve as a vital tool for businesses and investors seeking market‑based returns as an alternative to traditional bank deposits. The sector has seen significant growth in the EU, where 455 MMFs held about EUR 1.95 trillion in total assets at the end of 2024.
According to a 2023 Commission report, the EU’s MMF regulatory framework had been robust since coming into force in 2018. At the same time, the 2023 report noted that certain elements needed further assessment, notably in light of the events that unfolded during the “dash‑for‑cash” crisis in March 2020, when sudden market stress triggered a widespread rush for liquidity. Meanwhile, the international and European prudential community also identified vulnerabilities and issued recommendations for addressing them. Their analysis focused in particular on the uncertainty surrounding whether MMFs could handle large redemptions over longer periods without central bank support and whether they could use their liquidity buffers effectively. Analysis of market events since 2019 confirms that under stressed conditions, it is essential to ensure that MMFs have sufficient holdings of liquid assets that can be converted to cash and used to serve potential and unexpected increases in redemption levels.
As a follow‑up to the 2023 report, the Commission’s analysis contained in this new report confirms that EU MMFs generally follow a conservative approach, keeping liquidity reserves above the required regulatory minima. Through FAQs, the Commission moreover provides guidance on MMFs’ minimum liquidity levels and how liquidity buffers may be used, particularly to address increasing redemption requests during times of market stress. Based on extensive data analysis, the Commission concludes that the appropriate weekly liquidity benchmark levels are 40% for stable net asset value MMFs and 20% for variable net asset value MMFs. These resilience levels would allow EU MMFs to withstand severe redemption shocks and help to ensure immediate liquidity for redemptions, especially in periods of stress when MMFs may experience redemptions over several consecutive days.
The report and FAQs can help both MMF managers and competent authorities to identify situations that may warrant closer scrutiny. This should further reduce the risks of contagion to the rest of the financial system and the economy during times of stress. Moreover, it will enable consistent and well calibrated supervision of MMFs in the EU. By taking this measured approach, the Commission is acknowledging the experiences of recent crises, as well as taking decisive and timely action to strengthen the framework following international recommendations on financial stability.
Maria Luís Albuquerque, Commissioner for Financial Services and the Savings and Investments Union said on the day of adoption:
“Today we are providing clearer guidance on how money market funds should maintain and use liquidity buffers, particularly in times of market stress. This will support consistent supervision and further strengthen the resilience of money market funds, helping safeguard financial stability“.
Related links
Report and frequently asked questions
Money market funds
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