On Apr. 1, 2025, LUX CSSF issued circular CSSF 25/877 re ESMA Guidelines on stress testing scenarios under art 28 of Money Market Fund Regulation - 2024 update.
Combines update of the methodology to assess the impact of the macro-systemic shocks by providing additional explanation on the reporting components, with the annual update of the common reference parameters for the stress test scenarios.
2024 update of the Guidelines, have only been changed in s 4.8, including in particular sub-section 4.8.5 on the macro-systemic shocks, and in section 5 on the calibration, noting updated calibration was motivated by a recalibration of the risk parameters.
The scenarios hence reflect the assessment of prevailing sources of systemic risks identified for the EU financial system by EU ESMA, EU ESRB and ECB as of Nov. 2024.
The shocks have been calibrated to be severe, consistent with an increase in tail risks, in context of high geopolitical uncertainty stemming from multiple conflicts worldwide.
Geopolitical events would amplify trade disruptions, lead to increase of commodity prices, leading to inflationary pressures, which in turn would trigger re-appraisal in market expectations of monetary policy, generating a spike in market risk free rates.
The resulting tightening of financing conditions would drive higher asset price volatility.
In relation to the macro-systemic shocks, EU ESMA, NCAs saw that, when reporting the impact of macro- systemic shocks on the NAV, some managers deducted outflows from figure reported, while others only reported impact on value before outflows.
2024 Guidelines include clarifications on how to report impact of macro-systemic shock on funds’ NAV, shock on weekly liquidity: this is not an amendment, just clarification.
Replaces and repeals previous circular CSSF 24/857, with effect from Apr. 24, 2025 and all entities falling under scope of Circular are expected to apply 2024 Guidelines for preparation of MMF reporting as from reporting date Jun. 30, 2025 onwards.
On Apr. 24, LUX CSSF issued circular to comply with ESMA guidelines.
LUX CSSF issued circular CSSF 24/857 re ESMA Guidelines on stress test scenarios under article 28 of the Money Market Fund Regulation – 2023 update.
Follows ESMA Mar. 2024 MMF stress test scenarios translated guidelines, see #161828.
Purpose
The 2023 ESMA Guidelines updated the methodology re application of the scenario re hypothetical changes in the level of liquidity of the assets held in the MMF portfolio.
And also updated the common reference parameters for the stress test scenarios.
Effectiveness
Updated circular enters into force on May 6, 2024, repealing cir CSSF 23/831.
LUX CSSF expects all in scope entities to apply the 2023 guidelines for the preparation of the required MMF reporting as from the reporting date Jun. 30, 2024 onwards.
Apr. 2025 Update
On Apr. 1, 2025, LUX CSSF issued circular CSSF 25/877 re ESMA Guidelines on stress testing scenarios under art 28 of Money Market Fund Regulation - 2024 update.
Combines update of the methodology to assess the impact of the macro-systemic shocks by providing additional explanation on the reporting components, with the annual update of the common reference parameters for the stress test scenarios.
2024 update of the Guidelines, have only been changed in s 4.8, including in particular sub-section 4.8.5 on the macro-systemic shocks, and in section 5 on the calibration, noting updated calibration was motivated by a recalibration of the risk parameters.
The scenarios hence reflect the assessment of prevailing sources of systemic risks identified for the EU financial system by EU ESMA, EU ESRB and ECB as of Nov. 2024.
The shocks have been calibrated to be severe, consistent with an increase in tail risks, in context of high geopolitical uncertainty stemming from multiple conflicts worldwide.
Geopolitical events would amplify trade disruptions, lead to increase of commodity prices, leading to inflationary pressures, which in turn would trigger re-appraisal in market expectations of monetary policy, generating a spike in market risk free rates.
The resulting tightening of financing conditions would drive higher asset price volatility.
In relation to the macro-systemic shocks, EU ESMA, NCAs saw that, when reporting the impact of macro- systemic shocks on the NAV, some managers deducted outflows from figure reported, while others only reported impact on value before outflows.
2024 Guidelines include clarifications on how to report impact of macro-systemic shock on funds’ NAV, shock on weekly liquidity: this is not an amendment, just clarification.
Replaces and repeals previous circular CSSF 24/857, with effect from Apr. 24, 2025 and all entities falling under scope of Circular are expected to apply 2024 Guidelines for preparation of MMF reporting as from reporting date Jun. 30, 2025 onwards.
