June 1, 2012 / 2:43 PM / 7 years ago

Regulators take more time over money market reform

LONDON (Reuters) - Global regulators will take more time over tightening rules for money market mutual funds after one of the world’s top industry players said their proposals needed refining.

World leaders (G20) asked the International Organization of Securities Commissions (IOSCO) to devise rules for the $60 trillion “shadow banking” sector, which has been more lightly regulated than traditional banking.

IOSCO published a paper in April mapping out possible risks it sees in money market funds and a range of policy options for the $4.7 trillion sector.

“IOSCO has received a number of requests to extend the original one month consultation period in order to allow respondents to comment in greater detail,” the global body said in a statement on Friday.

Regulators are under the gun to meet a July deadline for recommendations to G20 leaders on what action to take.

Tougher curbs on traditional banks are being introduced in January and policymakers fear risky activities will migrate to shadow banks, a sector that includes money market funds, repos and off balance sheet investment vehicles.

Money market funds provide credit and invest in short-term instruments like commercial paper, bank certificates and repos.

Fidelity Investments, the biggest money market mutual fund in the United States with $415 billion assets under management, said they are already subject to comprehensive rules which have just been updated.

Fidelity, which published its response to IOSCO’s consultation on Thursday, agreed on the need for “some minimum international standard” but that different rules have evolved across the world to reflect differences in economies.

“It is important for regulators to recognize these differences within their jurisdictions, which may necessitate varying regulation,” Fidelity said.

The sector was the “antithesis” of shadow banking, it added.

“We recommend that international regulators concentrate on introducing regulation to the various pools, structured vehicles, and other funds that offer cash investment without the strict rules under which money market funds operate,” Fidelity said.

Money market funds regard themselves as a safe investment but came under the spotlight in the 2007-09 financial crisis when the Reserve Primary Fund “broke the buck” when its shares fell below a dollar in September 2008, a rare event in the sector.

Reporting by Huw Jones; Editing by Jon Loades-Carter

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