FCA outlines revised money market fund rules for UK liquidity resilience

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FCA money market fund rules

Highlights

FCA will require all UK money market funds to meet minimum weekly liquid asset levels—40% for stable NAV funds, 20% for variable NAV funds—under revised liquidity resilience rules.
New framework delinks liquidity thresholds from automatic fees or redemption gates for constant NAV funds and introduces enhanced Know Your Customer measures focusing on investor concentration risks.
The UK government aims to repeal current Money Market Funds Regulation and implement replacement legislation by end of 2026, with FCA policy statement and interim guidance due before then.

Revised liquidity framework and rulemaking timeline

As reported by the Financial Conduct Authority, the regulator is preparing new rules for money market funds after the government said on 15 May that it expects to lay legislation replacing the UK Money Market Funds Regulation.

Money market funds play a central role in cash management and offer an alternative or complement to bank deposits for a wide range of investors. The FCA says recent market stress underscores the need to strengthen the resilience of these funds, but updated analysis supports a more tailored approach than it proposed in consultation CP23/28.

The regulator now plans to introduce a new rule requiring all money market funds to hold sufficient liquidity for adequate resilience. It intends to retain the current minimum weekly liquid asset requirements in its rules, while setting supervisory guidance that stable NAV funds need to hold 40% weekly liquid assets and variable NAV funds need to hold 20% to meet the new resilience standard.

The FCA also says money market funds should fall temporarily below those weekly liquidity levels only to meet redemptions or because of factors outside a manager's control. It does not expect funds to operate regularly below those levels at quarter-end or year-end, while current minimum daily liquid asset requirements are set to remain unchanged and no new daily liquidity guidance is planned.

Market impact and broader policy direction

The updated stance follows further engagement by the FCA and the Bank of England, additional data collection and revised analysis of appropriate resilience levels. That work draws on the Bank of England's system-wide exploratory scenario exercise, which indicates that in some scenarios outflows from money market funds may be lower than in earlier stress episodes because of changes in market structure and firms' greater ability to meet liquidity needs through other channels.

Alongside the liquidity changes, the FCA intends to carry forward most of the other measures set out in its consultation, including delinking liquidity thresholds from automatic consideration of fees or redemption gates for constant NAV-style structures. It also plans enhanced Know Your Customer requirements focused on investor concentration and the risk of correlated withdrawals.

The regulator says the revised package is designed to raise resilience across UK-domiciled money market funds while preserving their usefulness for investors. The government expects legislation repealing the current framework to be introduced by the end of 2026, and the FCA says it plans to align its new rules with that timetable, with a policy statement and interim final guidance on weekly liquid asset levels due before then.

Our earlier update on the Bank of England’s rate stance highlighted MPC member Alan Taylor’s view that current borrowing costs remain restrictive, with no immediate case for further hikes despite conflict-related inflation risks. He suggested policy is likely to stay on hold unless conditions deteriorate into a worst-case scenario, underscoring how external shocks are shaping UK financial conditions.

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