Proposed regulatory reforms to the U.S. money market fund industry will likely lead to lower assets under management and higher operating costs for independent fund managers, says Moody’s Investors Service in a new report.

The U.S. Securities and Exchange Commission (SEC) is expected to finalize reforms to the US$2.6 trillion money market fund industry at some point this year, which Moody’s says will probably “result in loss of AUM and higher operating costs for MMF managers.”

The SEC’s proposals call for institutional prime and tax-exempt money market funds to shift to a variable net asset value structure (VNAV); and, for a 2% liquidity fee and redemption gates to be imposed on investors in both institutional and retail non-government funds, in the event of high redemptions.

A final rule could adopt either proposal or combine both, the rating agency says. And, it suggests that if either of them are enacted, the use of money market funds by institutional investors (the largest source of money market fund assets, and the constituency most negatively impacted) will decline.

“Overall, we find that large bank-sponsored money managers are better positioned to adapt to new rules than independent managers, said Rory Callagy, a Moody’s senior analyst and the author of the report. “That’s because offering bank deposit products in addition to government [money market funds] as well as other liquidity products will help these firms recapture flow rates compared to their peers.”

Looking at four leading independent managers in terms of money market AUM: Fidelity Management & Research, Federated Investors, BlackRock, Inc., and The Vanguard Group; Moody’s says that Federated’s overall business is most sensitive to either SEC proposal. Money market assets generate roughly 40% of the firm’s annual revenue and its brand image is intertwined with these funds, it says.

BlackRock, Vanguard and Fidelity will be less affected, it suggests, as money market funds constitute only a small percentage of their total AUM. However, Moody’s also says that BlackRock is most vulnerable to the VNAV reform proposal, as 65% of its U.S. money market AUM would be affected. And, that Fidelity will feel a significant impact from the liquidity fee and redemption gate proposal, as 18% of its overall AUM would be affected.

Even so, Moody’s says that the most aggressive reform scenario would not result in rating changes for either of the firms it rates, BlackRock and Fidelity.