ESMA to examine funds’ valuation practices

Amid heightened market uncertainty, European securities regulators are launching a review of valuation practices in the asset management industry.

The European Securities and Markets Authority (ESMA) announced that, along with the region’s local regulators, it’s undertaking a compliance review to examine adherence to valuation requirements among traditional and alternative investment funds, particularly their approach to valuing illiquid assets.

The review, which will be conducted throughout the year, will focus on fund managers that invest in less liquid assets such as private and illiquid equities, corporate debt, real estate and high yield bonds, among other asset classes.

A core objective of the exercise is “the consistent and effective supervision of valuation methodologies, policies and procedures of supervised entities to ensure that less liquid assets are valued fairly both during normal and stressed market conditions,” ESMA said.

The regulator said assessing valuation risks is particularly important in the current economic environment, as these risks “may pose a potential threat to financial stability.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.