TITLE: European Securities and Markets Authority Publishes Stress Testing Guidelines for Money Market Funds
BODY:
On 26 March 2026, the European Securities and Markets Authority (ESMA) published guidelines on stress testing scenarios for money market funds in accordance with the Money Market Fund Regulation (Regulation (EU) 2017/1131). The guidelines establish common reference parameters for stress testing scenarios that money market fund managers must conduct under Article 28 of the regulation.
The guidelines apply to competent authorities, money market funds, and money market fund managers across the European Union. They specify stress testing requirements across six key risk factors: hypothetical changes in asset liquidity levels, credit risk changes including rating events, interest rate and foreign exchange movements, redemption levels, changes in spreads for index-linked interest rates, and macroeconomic shocks affecting the broader economy. The guidelines distinguish between historical scenarios, which replicate previous crises and their effects on current portfolios, and hypothetical scenarios, which predict potential future events based on specified parameters.
ESMA has calibrated the parameters for 2025 in collaboration with the European Systemic Risk Board (ESRB) and the European Central Bank (ECB), with most parameters updated according to the ESRB's latest adverse scenario. The guidelines include detailed calibration tables for liquidity discounts, credit spread shocks, interest rate movements, foreign exchange shocks, and redemption scenarios. Fund managers must apply these parameters when conducting stress tests and reporting results under Article 37 of the Money Market Fund Regulation.
The guidelines apply two months after publication on ESMA's website in all official European Union languages. Competent authorities must notify ESMA within two months of publication whether they have complied with the guidelines, intend to comply, or will not comply, providing reasons for any non-compliance.
**Reference:** ESMA50-481369926-30848, available at www.esma.europa.eu