Global securities regulators are proposing a new set of principles for valuing collective investment schemes, such as investment funds.

The key policymaking body of the International Organization of Securities Commissions, IOSCO’s technical committee, Thursday published a consultation report setting out principles that can be used to assess the quality of regulation and industry practices concerning the valuation of collective investment schemes, thereby ensuring that investors are treated fairly.

The report updates and modernizes IOSCO’s existing valuation principles, which were originally developed in 1999; and it aims to clarify some of the concepts put forward by IOSCO in other publications dealing with valuation.

The paper notes that there have been a number of developments that have impacted the subject of valuation since it last reviewed the issue. For example, many complex and hard-to-value securities, such as structured products, are now available to funds, and the value of these sorts assets cannot be determined by using quoted prices.

“The difficulty and subjectivity of valuation increases regulatory risks and requires general principles to be supplemented by the identification of policies and procedures designed to address the appropriate valuation of CIS assets,” it says.

IOSCO is seeking comment on the proposed principles by May 18. The report sets out 13 principles, including: that fund managers should establish comprehensive, documented policies and procedures to govern the valuation of assets; those policies should identify the methodologies that will be used, they should seek to address conflicts of interest; and the valuation arrangements should be disclosed to investors. And, it says those policies should be reviewed regularly.

Additionally, it recommends that funds should have policies in place that seek to detect and prevent pricing errors; errors should be addressed promptly, and investors fully compensated; and a third-party should review the valuation process at least annually. It also says that a fund’s portfolio should be valued on any day that units are purchased or redeemed; and, that its net asset value should be available to investors at no cost.