Money market funds will have to join strictly defined sectors laid out in the Financial Services Authority (FSA) handbook, according to the Investment Management Association (IMA).

The IMA has introduced two new money market sectors, based on the European Securities and Markets Authority (ESMA) Short Term Money Market and Money Market definitions, effective from 1 January 2012.

So far, ten firms have confirmed they will join the IMA Short Term Money Market sector, with six joining the IMA Money Market. A number of funds have yet to make a decision.

Jane Lowe, director of markets at the IMA, commented, ‘Following consultation with our members, we have decided the IMA money market sectors should reflect exactly what appears in the FSA Handbook.

‘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 IMA had previously defined the money market sector as ‘funds which invest at least 95 per cent of their assets in money market instruments’.

To make sure firms comply with the new definitions, they will need to supply quarterly certification and monthly portfolio holding data for each fund to Morningstar, the IMA’s monitoring company.

However, these compliance measures and new definitions may force even more funds to follow Standard Life, who pulled out of the sector in April due to mounting regulations.

The ESMA is an independent EU regulatory body dedicated to 'ensuring the integrity, transparency, efficiency and orderly functioning of securities markets'.