The Financial Stability Board (FSB) has published its Thematic Review on Money Market Fund (MMF) Reforms. The review takes stock of the measures adopted or planned by FSB member jurisdictions in response to the 2021 FSB report, Policy Proposals to Enhance MMF Resilience. The review does not assess the effectiveness of those policy measures in addressing risks to financial stability, as this will be the focus of separate follow-up work by the FSB in 2026.
The main MMF vulnerability identified by jurisdictions is the mismatch between the liquidity of fund asset holdings and the redemption terms offered to investors, which makes MMFs susceptible to runs from sudden and disruptive redemptions. To address vulnerabilities, the 2021 FSB report provided a menu of policy options including: imposing on redeeming investors the cost of their redemptions; enhancing the ability to absorb credit losses; addressing regulatory thresholds that may give rise to cliff effects; and reducing liquidity transformation.
The review finds that progress in implementing the 2021 FSB policy proposals has been uneven across FSB member jurisdictions. Authorities in all jurisdictions reported that they had implemented policies aimed at addressing MMF vulnerabilities prior to the 2021 FSB Report. Since then, some jurisdictions have introduced new policy tools or recalibrated existing ones (China, India, Indonesia, Japan, Korea, Switzerland, US), while others are still in the process of developing or finalising their reforms (EU, South Africa, UK). The review concludes that, given the vulnerabilities reported in individual jurisdictions, further progress on implementing the FSB policy toolkit would be needed to enhance MMF resilience and limit the need for extraordinary central bank interventions during times of stress.
The review calls on FSB member jurisdictions that have not yet done so to review their policy frameworks and adopt tools to address identified MMF vulnerabilities, taking into consideration the 2021 FSB policy proposals. Where relevant tools, such as minimum liquidity requirements, are already available, the review recommends that FSB jurisdictions consider whether these need to be re-calibrated to ensure their effective use and to maintain a sufficient level of MMF resilience. It also recommends that IOSCO consider the findings of this review when it revisits its 2012 Policy Recommendations for MMFs in light of the 2021 FSB Report. The FSB will take these findings into account in its monitoring of the vulnerabilities and policy tools for MMFs.
Ryozo Himino, Chair of the FSB’s Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review said, “This report summarises the progress made to date by FSB member jurisdictions in implementing the 2021 FSB policy proposals to address MMF vulnerabilities, identifies remaining areas for further work, and lays the ground for the assessment of the reforms’ effectiveness that the FSB plans to conduct in 2026.”
