Global securities regulators have published a new set of final principles to guide both asset managers and regulators in valuing collective investment schemes (CIS), such as investment funds.
The International Organization of Securities Commissions’ (IOSCO) board published a final report today, setting out a list of 11 principles designed to help firms and regulators to assess the quality of regulation and industry practices regarding the valuation of collective investment schemes.
The new report updates principles originally developed by IOSCO in 1999. Since then, the industry, markets, and regulation have undergone many changes, and these revisions aim to reflect these developments.
For example, IOSCO notes that many complex and hard-to-value assets are now eligible for these sorts of portfolios, including some that did not exist a decade ago. These sorts of assets cannot simply be marked-to-market, instead funds may have to rely on internal valuation techniques which call for management’s judgment.
“The difficulty and subjectivity needed for certain valuations increases regulatory risks and calls for a set of principles to guide the identification of policies and procedures designed to ascertain the proper valuation of CIS assets,” IOSCO says.
It also stresses that the implementation of comprehensive policies and procedures for asset valuation “is a fundamental principle underpinning investment management”. IOSCO says that it’s critical that a fund properly value its assets, including those that are not readily quoted.
Additionally, the final report emphasizes the importance of independent oversight of funds’ valuation policies and procedures in order to mitigate conflicts of interests.