News

China’s MMF rules could reduce systemic risk: Fitch

Fitch ratings buildingThe new rules for major money market funds (MMFs) in China could have the effect of encouraging more diversification and reducing systemic risk, according to credit rating company Fitch. The China Securities Regulatory Commission (CSRC) issued new draft regulations last week designed to rein in some of the country’s largest funds. The proposed rules impose a number of restrictions in terms of leverage, single issuer and investor concentration and minimum holding levels for certain liquid assets. They also require MMFs and their custodians to set aside more capital as a risk reserve. While Fitch states that the rules would lower the credit risk of the affected MMFs, they may also diminish yields and lead to capital outflows. “Fitch believes the cost of these risk reserves could lead fund providers to cap fund sizes and/or investor numbers, potentially leading to new fund launches to accommodate incremental demand,” states the rating agency. “Furthermore, Fitch expects both fund providers and custodians will be incentivised to diversify fund distribution channels for all their MMFs under management.” ©2022 funds global asia

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