The Financial Sector Supervisory Authority issued a circular on December 2, 2014 adapting Luxembourg’s regulatory framework for investment funds under the legislation of December 17, 2010 in line with the changes set out in the European Securities and Market Authority’s Guidelines on a common definition of money market funds, issued on August 22 last year.
The circular has immediate effect, superseding the previous rules on money market funds, issued by ESMA’s predecessor, the Committee of European Securities Regulators, in May 2010, and incorporated into Luxembourg’s regulatory framework through CSSF Circular 11/498.
As implemented in CSSF Circular 14/598, the ESMA guidance now requires the management company of a money market fund or short-term money market fund (or the fund itself, if self-managed) to put establish an internal documented assessment process to determine whether the money market instruments in which it invests can be considered of high quality.
The process may take into account ratings from ESMA-regulated rating agencies, albeit without “mechanistic reliance” on such external assessments. In the event of any downgrade by a rating agency below the two highest short-term credit ratings, the manager of a short-term money market fund should conduct a fresh assessment of the instrument’s quality.
For money market funds, the downgrade of a sovereign instrument – one issued or guaranteed by a central, regional or local authority or a central bank of an EU member state, or by the European Central Bank, the European Investment Bank or the EU itself – below investment grade by an external agency should trigger a reassessment of its quality.
CSSF Circular 14/598 can be consulted at