FMA guidance on MIS Manager valuation and pricing practices

The FMA has released an information sheet setting out its recommendations following a review of the pricing and valuation practices of Managed Investment Scheme (MIS) managers.

The review was undertaken to determine whether MIS managers are valuing and pricing MIS assets consistently in line with the International Organisation of Securities Commissions (IOSCO) principles (IOSCO Principles), which reflect a level of common approach and a practical guide for regulators and industry practitioners alike.

A link to the information sheet is available here.

Who needs to read it?  Why?

The information sheet will be of particular interest to MIS Managers and their supervisors.  It will also be of interest to third party providers of valuation and unit pricing (outsource providers).

What does it cover?

The information sheet sets out the FMA’s recommendations following a review of the pricing and valuation practices of six MIS managers who perform in-house valuation and unit pricing, eight MIS managers who outsource their valuation and unit pricing and five outsource providers.  The FMA found that MIS managers’ operations and asset valuations were generally consistent with the IOSCO Principles.

The FMA’s key recommendations were:

  • MIS managers who do accept their outsource provider’s policy should note any exceptions to that policy, including a comprehensive process for bespoke valuations (for the purpose of Principle 1 of the IOSCO Principles).
  • stale pricing should be fully addressed by all MIS managers, including, for example, having clear policies for adjusting valuations for stale prices, or for escalating a pricing decision where prices seem to be stale (for the purpose of Principle 2 of the IOSCO Principles).
  • MIS managers should have their own policies and procedures to identify and manage risks associated with conflicts of interest (for the purpose of Principle 3 of the IOSCO Principles).
  • MIS managers should ensure reviews of their valuation policies and procedures are performed by an entity or person sufficiently independent of the valuation process.  It also recommends methodologies be reviewed annually (for the purpose of Principle 6 of the IOSCO Principles).
  • MIS managers should fully document their outsource provider’s due diligence process to ensure consistency and robustness.  Thorough due diligence ensures the outsource provider has the appropriate systems, controls, policies, procedures, knowledge, experience and training to perform their function (for the purpose of Principle 7 of the IOSCO Principles).
  • MIS managers should ensure their pricing and valuation policy disclosures are appropriate.  While the FMA does not consider it necessary to include the policy within the SIPO, it recommends MIS managers make their valuation and pricing policy available on the Disclose register or their website, and provide a link to the SIPO (for the purpose of Principle 8 of the IOSCO Principles).

Our view

While compliance with the IOSCO Principles is not a legal requirement in New Zealand, the principles are reflected in the FMA’s MIS licensing criteria, which set minimum standards for asset valuation, pricing and outsourcing.

In our view, the recommendations are good practice guidelines which will help MIS managers ensure the integrity of the valuation process, ultimately ensuring that investors are treated fairly and transparently.

What next

If you have any questions in relation to the FMA’s recommendations, please contact one of our experts.

Who can help

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