From 1 January next year, there will be a Money Market sector alongside a Short-Term Money Market sector, with six firms joining the former, ten the former, with a number of firms still to confirm which sector their funds will sit in.
A spokesperson for the IMA confirmed the reason for the change, saying: "The two-tiered approach recognises the distinction between short-term money market funds, which operate a very short-weighted average maturity and weighted average life, and money market funds which operate with a longer-weighted average maturity and weighted average life.
"One of the key differences is that the Short-Term Money Market sector covers both variable NAV and constant NAV funds whereas the Money Market Fund sector does not accommodate constant NAV funds."
If the IMA follows the same path as the FSA, it will give these firms six months for their fund to comply with the new parameters.
One exception to its normal rule is that the IMA will waive the requirement to have minimum of ten funds in a sector, so that it will comply with the FSA Handbook.
Jane Lowe, director of markets at the IMA, said: “"We have long had concerns about the proliferation of descriptions for money market funds. Introducing regulatory definitions for authorised money market funds brings welcome clarity for consumers in both the UK and other European countries."
The old IMA Money Market sector definition was:
Funds which invest at least 95% of their assets in money market instruments (i.e. cash and near cash, such as bank deposits, certificates of deposit, very short term fixed interest securities or floating rate notes).
The new definitions are instead a series of 12 ‘conditions’ that the funds must satisfy for inclusion in the relevant sector.
The sectors will be reviewed in 12 months.