UK regulator softens proposed money market fund liquidity rules

Under the revised guidance, 'stable net asset value' (NAV) funds will have a "strong supervisory expectation" to hold 40% of their assets in weekly liquid assets (WLA). For 'variable NAV' funds, the expectation will be 20% WLA. These levels are lower than the FCA's original proposals, which had suggested a binding requirement for firms to hold 50% of their assets in investments convertible to cash within a week.

The FCA stated that funds would be permitted to dip below these levels only "very rarely" for reasons such as meeting redemptions or due to circumstances outside their control. The regulator indicated that the updated proposals aim to deliver a clear increase in expected resilience while ensuring funds can continue to meet investor needs. The proposals are subject to final consideration and sign-off within the FCA.