“That is one of the questions in the [FCA’s] questionnaire: have you changed the basis on which you value these assets in the past three years, and if so, why and who approved it?
“So it needs to be set in stone. It needs to be approved at a very senior level. Probably a board would need to look at the valuation policy, and it should be reviewed on a regular basis.”
While the industry awaits to hear the outcomes of the regulator’s multi-firm review, Sutton at Grant Thornton says that, based partly on the firm’s experience as external valuers, he expects strong encouragement for funds to apply the IPEV guidelines.
“We also expect an increased focus on valuation documentation, to ensure that key judgements and assumptions are clearly explained and applied consistently over time,” he adds.
Reilly at Bovill Newgate says a consultation paper might follow, which could propose a requirement for valuations to be sent at certain key points, such as trigger events.
“[The FCA] may become more prescriptive about that; insist on valuation policies, naming or setting out those trigger events, sharing that with customers.”
As to whether firms have been pre-emptively reviewing their valuation practices for private assets following the FCA announcing its multi-firm review, Sutton says that many fund managers have been reviewing and improving their valuation processes over several years.
“[This is] often driven by more challenging audit processes, with valuations being the key risk area for fund audits,” he says. “We are encouraged that many funds are seeking further discussions and clarifications on the quality of their valuation governance, particularly since the FCA’s review was announced.”
And Reilly says that clients at Bovill Newgate have been encouraged to undergo a ‘health check’.
“We've consulted with them. I think people are maybe refreshing their terms of reference, looking again at voting membership; also looking, I think, at using external audit or assurance from people like ourselves…I'm expecting more interest from clients saying, ‘Are there things we should be doing?’” she says.
“But the FCA are not at this stage saying, ‘You have to do this, you have to do that’. They are information gathering. So clients won't want to change things unnecessarily.
“The changes are likely to come more when there's some conclusions coming from this exercise…given that the FCA hasn't really provided significant guidance in this area before, it would be harsh of them to start taking any kind of enforcement at this point.
