IFIC Stresses Domestic Regulation of Money Market Funds in Submission to IOSCO
July 6, 2012
TORONTO - The Investment Funds Institute of Canada (IFIC) has submitted comments on the consultation report Money Market Fund Systemic Risk Analysis and Reform Options issued by the Technical Committee of the International Organization of Securities Commissions (IOSCO).
IFIC commends IOSCO for exploring whether the differences between jurisdictions require different policy approaches. IFIC agrees with comments made by The International Investment Funds Association that differences that already exist among international money market fund regulations (such as the differing degrees of investment restrictions imposed on funds) and local market conditions (including the types of investors, tax treatment, banking and securities laws) are so significant and fundamental as to make the creation of detailed worldwide 'one size fits all' regulatory approaches inappropriate.
The policy options under consideration by IOSCO would represent fundamental structural changes to the money market fund industry, creating substantial uncertainty and potential systemic risk.
"Implementation on a national level of a regulatory approach that does not take into account the unique characteristics of a particular jurisdiction's money market fund industry could create unintended adverse consequences, rather than help mitigate risks," notes Joanne De Laurentiis, IFIC's president and CEO.
Canadian investment funds and the intermediaries that sell them are subject to an array of nationally harmonized securities regulations that impose strict requirements on fund management, compliance and portfolio management activity, and the operating practices of intermediary distribution firms and their representatives. Canadian regulators have implemented liquidity buffers for money market funds that are appropriate to our marketplace. Since the significant majority of Canadian money market fund investors are individual retail investors, there is a much lower risk of massive immediate large-dollar redemptions by a single unitholder than exists in other jurisdictions.
"Strong and conservative Canadian regulation permitted the Canadian financial sector to remain one of the strongest in the world throughout and after the market crisis in 2008," Ms. De Laurentiis added. "The Canadian economy as a whole performed better and did not suffer the depth of recession experienced by other nations. We submit that this was a result of prudent, made-in-Canada regulation that ensured the economic sectors were appropriately understood and regulated."
The Ontario Securities Commission has confirmed that during the crisis, Canadian money market funds functioned as designed and withstood the liquidity crisis of 2008-2009 without a single fund 'breaking the buck' or otherwise collapsing. All Canadian money market funds were able to meet redemption requests, no investments held by the funds defaulted or were written down, and virtually all funds were in compliance with relevant securities laws.
Money market funds play a critical role in financing the current operations of many businesses and national and local governments, enabling these organizations to efficiently manage their cash needs while providing a return to investors.
IFIC requests that IOSCO provide an opportunity for consultation/comment on its final recommendations before they are submitted to the Financial Services Board (FSB), and further request that the FSB deliberations on these matters be subject to public consultation.
For a copy of the IFIC submission: https://www.ific.ca/Content/Document.aspx?id=7204&LangType=1033
For a copy of the IOSCO consultation report: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD379.pdf
IFIC is the voice of Canada's investment funds industry. IFIC brings together fund managers, distributors and industry service organizations to foster a strong, stable investment sector where investors can realize their financial goals. As of March 2012, the mutual fund industry in Canada represented about CDN $813 billion in total assets under management in highly regulated, publicly offered mutual funds.
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Senior Manager, Public Affairs
The Investment Funds Institute of Canada (IFIC)
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