TITLE: European Securities and Markets Authority Publishes Stress Testing Guidelines for Money Market Funds
BODY:
On March 26, 2026, the European Securities and Markets Authority (ESMA) published guidelines establishing common reference parameters for stress testing scenarios applicable to money market funds under the Money Market Funds Regulation (Regulation (EU) 2017/1131).
The guidelines specify stress testing procedures that money market fund managers must conduct to identify potential events or economic changes that could adversely affect funds. ESMA established common reference parameters across six key risk factors: hypothetical changes in asset liquidity levels, credit risk levels (including credit events and rating changes), interest rates and exchange rates, redemption levels, spreads between indices to which portfolio securities are linked, and macroeconomic shocks affecting the broader economy.
The guidelines distinguish between stress tests conducted by fund managers for internal risk management and common reference stress tests whose results must be reported to competent authorities. For common reference scenarios, managers must apply specific calibrated parameters including liquidity discount factors, credit spread shocks, interest rate shocks, and exchange rate movements. The guidelines also require managers to test scenarios combining multiple risk factors with investor redemption requests, including reverse liquidity stress tests, weekly liquidity stress tests, and concentration stress tests based on the two largest investors.
Competent authorities must report to ESMA within two months of publication 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 enter into force two months after publication on ESMA's website in all official European Union languages.