The Financial Conduct Authority (FCA) has published a consultation paper setting out proposals to enhance the resilience of UK money market funds (MMFs)。The document was developed in close consultation with the Treasury and the Bank of England。

A money market fund is a type of fund used by investors on a daily basis to deposit funds and quickly access them when needed.。MMF pools investors' funds to make low-risk investments in quality short-term assets。Multi-money funds are regulated to ensure that they can redeem investors' investments within a short period of time and return them in cash.。However, there is no guarantee of investment in multilateral money funds, but typically, investors in multilateral money funds will recover all or almost all of their investment。

Multi-money funds play an important role in the economy and investors need to rely on their ability to redeem cash in a short period of time。However, in the event of severe market stress, investors may not be able to retrieve funds from multi-money funds quickly or without unexpected losses。

MMFs typically use liquid assets (essentially cash on hand) to return funds to redeeming investors。If MMF's liquid assets are depleted and investors still demand the return of their investments, the fund will either need to "fire" the assets in a stressed market and pass on the resulting losses to investors, or suspend the return of investors' funds.。

Investors who are the first to redeem under pressure are more likely to get paid without unexpected delays or losses, so MMFs have a "first mover advantage," which in itself will prompt more investors to demand the return of their funds。

The Financial Regulatory Commission is consulting to strengthen the regulatory framework applicable to MMFs and reduce their vulnerability.。

The regulator recommended two major changes to current MMF regulation:

• substantially increase the minimum percentage of highly liquid assets that all types of MMFs must hold。This will ensure that MMFs have sufficient liquid assets to withstand large withdrawals in a short period of time under severe but plausible market pressures, which will significantly weaken the first mover advantage of multi-money funds。

• Removing existing regulatory requirements for important types of multi-money funds and "linking" the level of liquid assets of these multi-money funds to the need for multi-money fund managers to implement or consider implementing instruments that, if used, would weaken investors' ability to retrieve funds without unexpected delays or losses。This proposed policy change, known as "decoupling," is intended to reduce the additional first mover advantage that "linking" these types of MMFs could give them when their liquid asset levels fall.。