Ireland has joined Luxembourg on a supervisory drive to push the financial industry to improve their asset valuation processes for investment funds.
The Central Bank of Ireland has given fund managers in Dublin until the end of the second quarter next year to complete reviewing and upgrading where necessary their internal governance for fund valuations. A letter to the industry, published on Thursday, has defined four action points that need to be addressed at Board level.
Luxembourg supervisor CSSF in August ordered a similar valuation review with a deadline for the end of 2023. In particular smaller firms managing alternative investment funds may be challenged by the review of fund valuation methods. Both the Irish and Luxembourg review stem from a 2022 European supervisory assessment by the European Securities and Markets Authority, Esma.
The Irish central bank, in its industry letter, told investment firms to make sure that they have properly documented specific asset valuation policies with a clear outline for the operation roles and responsibilities for all parties involved in the valuation process. The central bank wants firms to “ensure clear ownership” for asset valuation policies, procedures and the review process.
NAV error procedures required
“Asset valuation policies and procedures should be subject to review by senior management at least annually or where required throughout the year to ensure they remain fit for purpose,” the CBOI letter said. “Reviews should be performed by persons with appropriate knowledge and experience and the approved valuation methodologies and models should be applied consistently across all funds under management for each Firm.”
The Irish supervisor underlined a clear need for investment firms to establish a “comprehensive errors procedure” and ensure remedial action is implemented. The Esma assessment made earlier found that not all firms have such error procedures in place. These would put in place controls and escalation measures to be applied should an error or an incorrect calculator of a Net Asset Value (NAV) occur.
“This could lead to the unfair treatment of investors where pricing or NAV errors occur,” CBOI said.
Ireland requires all firms to consider the observations CBOI highlighted in its industry letter to determine if any action is required.