Stress Testing

Under the MMFR, money market funds (“MMF”) (or their managers) are required to conduct regular stress tests as part of their risk management and regulatory disclosure obligations. Therefore, each MMF must have stress testing procedures in place to identify stress events, or future changes in economic conditions, and to assess the impacts these different scenarios may have on the MMF. These stress tests should be based on objective criteria and consider the effects of severe plausible scenarios.

ESMA is required to produce guidelines establishing common reference parameters for these stress test scenarios, which must be updated at least annually to take account of the latest market developments. ESMA issued its first set of guidelines in March 2018 and following a further consultation in September 2018 has published updated guidelines. The revised guidelines now include additional stress test scenarios in relation to hypothetical changes in MMFs’:

  • liquidity levels;
  • credit and interest rate risks;
  • redemptions levels;
  • widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied; and
  • macro-economic shocks.


As noted above, MMFs (or their managers) are expected to measure the impact of the common reference stress test scenarios as specified in the guidelines. Pursuant to Article 37 of the MMFR, the results of these stress tests (together with additional prescribed information) must be included in the quarterly reports that they must submit to their national regulator. (The frequency of reporting is annual in the case of a MMF whose assets under management in total do not exceed €100 million, but the MMF is, however also allowed to report quarterly). The additional information to be reported includes:

  • general characteristics, identification of the MMF and the MMF manager;
  • type of MMF;
  • portfolio indicators (NAV, WAL, WAM, liquidity indicators etc…); and
  • information on assets/liabilities.

The first quarterly report is due by the end of Q1 2020 and ESMA’s guidelines on reporting provide guidance on completing the prescribed reporting template. There is no requirement to retroactively provide historical data for any period before this reporting start date.

MMFs (or their managers) should ensure that they are conducting the required stress tests in accordance with the guidelines and have all the necessary information required to complete the stress testing field in the quarterly report.

If you would like to discuss the foregoing, or require any further assistance please feel free to contact a member of our team.