UK financial regulator softens proposed change to UK money market fund rules

LONDON, June 8 (Reuters) - Britain's financial regulator on Monday slightly softened its proposals for money market funds to hold more liquid assets which are designed to ensure they are resilient enough to weather financial shocks.

In May the government said it would impose tougher rules on money market funds, ‌which were hit by heavy redemptions during a COVID-19-induced "dash for cash" and have been a focus of regulators since.

The Financial Conduct Authority set out an update to its original proposals in a statement on Monday after receiving consultation responses.

It said current minimum weekly liquid assets would be unchanged, but that it would now set out a "strong supervisory expectation" that so-called 'stable net asset value' funds would need to hold 40% WLA and variable net asset value funds would need to hold 20% WLA.

Funds would be able to dip below these levels to meet redemptions or for reasons outside their control, but should only do so "very rarely", the FCA said.

The original proposals had been for a binding requirement that firms held 50% of their assets in investments that could be converted into cash within a week.

"Our updated proposals will deliver a clear increase in the level of resilience expected of UK MMFs while making sure they can continue to meet the needs of investors," the regulator said.

They are subject to final consideration and sign-off within the FCA.

(Reporting by Sam Tabahriti, writing by Sarah Young and William James; editing by David Milliken)