FCA tightens UK money market fund liquidity tests for stable NAV funds
The Financial Conduct Authority today set out next steps for rewriting the UK regime for money market funds, confirming it will keep minimum daily liquid asset requirements unchanged while introducing a new resilience rule. The regulator expects stable net asset value (NAV) funds to hold 40% weekly liquid assets and variable NAV funds to hold 20%, as a supervisory expectation rather than a rule change.
Liquidity calibrations
The FCA’s update departs from the earlier consultation, which proposed a single harmonised uplift to daily liquid assets (DLA) and weekly liquid assets (WLA) for all MMFs. Instead, it splits the approach between rules (minimums) and guidance (strong supervisory expectations).
- Daily liquid assets (DLA): The FCA will retain the current minimum DLA requirements and does not plan to publish new guidance on DLA levels.
- Weekly liquid assets (WLA): The FCA’s guidance will contain a strong supervisory expectation that stable NAV MMFs should hold 40% WLA and that variable NAV MMFs should hold 20% WLA in order to meet the new resilience requirement.
- Minimum WLA in rules: The FCA intends to keep the current minimum WLA requirements in rule text, using guidance to set out higher supervisory expectations for resilience rather than embedding those higher percentages in the rules.
- Interim guidance timetable: The FCA plans to publish interim final guidance on WLA levels ahead of the end-2026 timetable for making the new rules.
Resilience requirement
The FCA plans to introduce a new rule requiring all money market funds to hold sufficient liquidity to achieve “adequate resilience”. The regulator says this resilience requirement is aimed at supporting financial stability and maintaining market integrity.
The FCA says DLA and WLA together should be sufficient to meet that resilience standard, and it will set out how that standard should be interpreted in guidance rather than by changing the DLA minima in rule.
Composition and eligibility of liquid assets
The FCA’s papers also describe what counts as DLA and WLA in practice and the permissibility and caps on certain assets being used to meet those thresholds.
- WLA composition and caps: For stable NAV MMFs, specified highly liquid government-issued or government‑guaranteed assets with a residual maturity of up to 190 days may be counted towards WLA, but such holdings are capped at 17.5% of total MMF assets.
- Weekly-maturing asset floor: An LVNAV or public-debt CNAV MMF must hold at least 50% of its assets in weekly-maturing assets, eligible reverse repurchase agreements terminable on not more than five business days’ notice, or eligible money market instruments that are highly liquid and settle within one business day, with residual maturities up to 190 days.
- DLA and WLA practical definitions: For UK MMFs, DLA typically comprises overnight deposits, reverse repurchase agreements, and assets with a residual maturity of one day. WLA generally comprises assets with a residual maturity of five business days or less, including DLA.
Other supervisory measures and product structure
- Delinking and KYC: The FCA intends to implement delinking provisions and stronger Know Your Customer requirements on investor concentration and correlated withdrawal risk as part of the new regime.
- LVNAV treatment: Industry responses note that the FCA’s decision preserves the LVNAV structure substantially in its current form alongside the new operational resilience and liquidity expectations.
Practical implications for fund managers and investors
By keeping minimum thresholds in rules but elevating higher liquidity targets into supervisory guidance, the FCA places the onus on firms to demonstrate to supervisors how their liquidity holdings meet the resilience objective even where the legal minima remain unchanged.
The FCA’s definitions of DLA and WLA and the caps on what can be counted towards WLA mean that funds seeking to meet higher supervisory WLA expectations will in practice need to increase holdings that meet the WLA definition. For example, this means holding more short‑dated government instruments, eligible reverse repos and very short-maturity money market instruments — consistent with the composition rules described above. The regulator’s approach preserves the legal floor for market participants while signalling a supervisory standard that stable NAV funds should be more liquid than the current minima, and that variable NAV funds should also hold a higher share of weekly‑maturing assets.
FCA decision process and next steps
The FCA’s updated package is subject to internal sign‑off before being finalised.
The FCA plans to make its new MMF rules to the same end‑2026 timetable the Government has and will publish interim final guidance on WLA levels ahead of that rules timetable.
Legislative path
The Government set out on 15 May that it expects to lay legislation to replace the UK Money Market Funds Regulation and has its expectation that legislation to repeal the MMFR will be introduced by the end of 2026.
The joint government-and-FCA policy paper says the new UK regime is expected to be in place by Q4 2026, subject to Parliamentary approval. The Government intends to extend the Temporary Marketing Permissions Regime in support of the transition.
--- Sources: https://www.fca.org.uk/news/statements/reforms-uk-money-market-fund-regulation
