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Valuation of illiquid assets

AMIC Valuation of assets working group

The ICMA Asset Management and Investors Council has been debating the topic of valuation of assets for some time on the basis of different presentations by leading academics and practitioner. The working group was set up in June 2010 and is supported by KMPG.

In July 2010, the IOSCO Technical Committee’s Standing Committee on the regulation of market intermediaries published a consultation report on intermediary internal controls associated with price verification of structured finance products and regulatory approaches to liquidity risk management.

The report sets out the results of surveys conducted around 2006 with firms and regulators on the internal controls and policies. The surveys were conducted prior to the crisis and the report makes recommendations to regulators in two areas in light of the crisis.

The AMIC’s response focuses on valuation governance arrangements for funds, particularly in the case of valuation of complex products such as ABS and structured products. The response recommends that a fund has a formalised Valuation Governance Arrangements. This would include a formal Valuation Policy detailing Valuation practices, procedures and controls. Valuations could be out-sourced to a third party service or there may be a Valuation/Independent Price Verification (IPV) unit internal to the fund or a combination of the two. If Valuations are outsourced to a third party, the Board of the asset management institution is responsible for making sure the policy is followed. In all cases, the Board is ultimately responsible for ensuring the accuracy of Valuations.

 

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