European Money Market Funds: History of Development and Regulation
Abstract
The purpose of this study of European Money Market Funds is to determine why MMFs have attracted different levels of acceptance in different countries. The study arrives at two findings: (1) the diversity of European MMFs is rooted in different historical developments in different countries’ financial markets; and (2) law and regulation have played a key role in MMFs’ development and acceptance in different countries. The jurisdictions of France, Ireland, Luxemburg, Germany, Spain, Switzerland, and the United Kingdom are included in this study.
In the absence of common regulation for European MMFs, two general tendencies shaped the market: (1) use of industry best practices as a basis for regulatory development; (2) introduction of stricter regulation imported from other jurisdictions. For example, European subsidiaries of U.S. asset management companies introduced U.S.-style MMFs to meet the demand for cross-border cash management services from multinational corporations.
Section 1 analyzes the UCITS Directive framework as it applies to European MMFs. Section 2 traces MMFs’ history in seven European countries. Section 3 examines challenges and opportunities prompted by regulatory attempts to harmonize the diverse European MMF practices. This empirical study of European MMFs supports the view that the diversity of these funds is the result of diverse historical experience, and that law and regulation matter a great deal. It also illustrates the continuous interaction of law, regulation and financial markets.