TITLE: European Securities and Markets Authority Publishes Updated Stress Testing Guidelines for Money Market Funds
BODY:
On March 26, 2026, the European Securities and Markets Authority (ESMA) published updated guidelines on stress testing scenarios for money market funds (MMFs) under the Money Market Funds Regulation (MMF Regulation). The guidelines establish common reference parameters for stress tests that MMF managers and competent authorities must apply when assessing potential adverse impacts on fund portfolios and liquidity positions.
The guidelines cover stress testing across seven key risk factors: liquidity changes in portfolio assets, credit risk changes including rating events, interest rate and foreign exchange movements, redemption levels, spreads between indices linked to portfolio securities, and macroeconomic shocks affecting the broader economy. For each factor, ESMA provides calibrated parameters and methodologies, including liquidity discount factors for government and corporate bonds, credit spread shocks by rating category, interest rate swaps by currency, and foreign exchange scenarios. The guidelines specify that managers should conduct reverse liquidity stress tests, weekly liquidity stress tests, and concentration risk tests. Managers must also simulate combined scenarios that integrate multiple risk factors with investor redemption assumptions.
The guidelines take effect two months after publication on ESMA's website in all official EU languages. Competent authorities must notify ESMA within two months whether they comply with the guidelines, do not comply but intend to comply, or do not comply and do not intend to comply. The guidelines are updated annually to reflect market developments, with the 2025 calibration incorporating parameters developed in collaboration with the European Systemic Risk Board (ESRB) and the European Central Bank (ECB).
REFERENCES:
ESMA50-481369926-30848, Guidelines on stress testing scenarios under the MMF Regulation (March 26, 2026)