Fitch: Saudi Arabia-Based Money Market Fund Sukuk Default Raises Questions on Country-Specific Regulations

Following the report of a Sukuk default by a Saudi Arabia-based MMF in May 2020, Fitch Ratings (Fitch) stated that the risk profiles of money market funds (MMFs) can be strongly influenced by investment guidelines and country-specific regulation. According to Fitch, this could be exacerbated by a stressed operating environment, which could potentially cause increased defaults in instruments with a lower credit quality that may be held by MMFs.

According to Fitch, Saudi-based MMFs can buy long-term assets such as Sukuk, despite being short-term vehicles. This differs from the USA and European funds, which cannot invest in securities having a residual maturity of over 397 days. Regulation in Saudi Arabia requires funds to...