The International Organisation of Securities Commissions (IOSCO) has emphasised the need for accurate and robust valuation practices in Collective Investment Schemes (CIS) to enhance investor confidence and safeguard the integrity of financial systems.
IOSCO stated this in a report titled “Recommendations on Valuing CIS”, released on Thursday.
A Collective Investment Scheme is a structure that pools funds from multiple investors to invest in assets such as equities, bonds, and real estate, with investors sharing risks and returns proportionately.
According to IOSCO, firms should establish comprehensive and documented policies and procedures to govern the valuation of fund assets.
The organisation said responsible entities must ensure an appropriate level of independence in valuation processes and adopt suitable methodologies for valuing each asset class held by a fund.
It also stressed that all fund assets should be valued at fair value.
IOSCO urged entities overseeing CIS to conduct periodic reviews of valuation policies and procedures to ensure their continued relevance and effective implementation.
It further recommended that firms carry out initial and ongoing due diligence on third-party valuation service providers engaged to perform valuation services.
According to the report, the use of such service providers should be clearly documented in a fund’s valuation policies and procedures.
IOSCO said the recommendations were informed by lessons from periods of market stress, including recent episodes of heightened market volatility.
It noted that the recommendations provide regulators and market participants with a clear and internationally applicable framework for strengthening valuation practices.