MMF liquidity climbdown: the FCA blinks on stable NAV resilience

The FCA has materially softened its proposed liquidity reforms for UK money market funds, abandoning the headline numbers in CP23/28 in favour of a lighter rule supplemented by supervisory expectations. The update, issued on 8 June 2026, follows Government confirmation on 15 May that it will lay legislation replacing the UK Money Market Funds Regulation (FCA).

The original consultation proposed raising daily liquid assets to 15% and weekly liquid assets to 50% across all MMFs, alongside delinking liquidity thresholds from the use of fees and gates in stable NAV funds (FCA). Industry pushed back hard on the WLA figure, and the regulator has now conceded ground. The revised plan keeps current minimum WLA requirements in rules, while setting a supervisory expectation that stable NAV MMFs hold 40% WLA and variable NAV MMFs hold 20% WLA to meet a new, broadly-worded resilience requirement (FCA). Delinking, which drew near-universal support, survives.

A different kind of regulatory instrument

The structural shift matters more than the numerical climbdown. By moving the quantitative expectation out of rules and into guidance, the FCA has chosen a more discretionary supervisory tool. Boards lose the certainty of a bright-line requirement but gain a measure of flexibility in how they evidence resilience. The trade-off favours larger, better-resourced managers who can sustain a supervisory dialogue, and disadvantages smaller sponsors who would have preferred a clear floor to design around. Expect supervisors to test buffer calibration against fund-specific outflow assumptions rather than a single industry standard.

The analytical basis for the change is also instructive. The FCA cites the Bank of England's system-wide exploratory scenario, which suggested MMF outflows in some scenarios may be lower than in prior stress episodes, reflecting changes in market structure and firms' improved ability to source liquidity elsewhere (FCA). That is a notable concession that post-2020 plumbing has improved, and it sets a precedent for how the regulator weighs scenario evidence against precautionary calibration. Stress-testing teams should read this as a signal that well-evidenced behavioural data can move the FCA off a published number.

What treasurers and allocators should reassess

For corporate treasurers and institutional cash allocators, the differentiation between stable NAV at 40% WLA and variable NAV at 20% WLA hard-codes a resilience premium into the stable NAV product. That gap will show up in yield, and it changes the relative attractiveness of MMFs versus bank deposits for in-scope investors (FCA). Boards of insurers, pension schemes and large corporates should ask their treasury functions to model the yield impact under the revised expectations before the legislation is laid, not after.

Managers, meanwhile, face a sequencing problem. The Government's replacement legislation has not yet been laid, and the FCA's final rules and guidance will follow it. That creates a window in which product design, fund prospectuses and client communications must be drafted against expectations rather than certainties. The firms that move early on engagement with supervisors will shape how the 40/20 split is interpreted in practice.

The FCA has chosen judgment over prescription. Senior leaders should treat the new guidance as a binding negotiation rather than a settled rule.