Capital markets & valuation
The significant increase in volume and complexity of derivative instruments led regulators to carry out post-crisis reforms to regulate banks, insurance companies and investment funds dealing with such financial instruments.As a result, it is crucial to thoroughly understand the risks associated with these instruments. Effective risk management of derivative instruments must include reliable control of the valuation.
Your challenges
In Luxembourg, the strengthening of the legal control environment is materialised by the issue of CSSF Circular 11/512 on risk management for UCITs and CSSF Circular 08/380 on eligible assets for UCITs.
These circulars call for implementation of a “process for accurate and independent assessment of the value of OTC derivatives” and indicate that UCITS must be able to determine, with reasonable accuracy, the “appropriate, transparent and fair valuation of OTC value” for their entire life span.
Additionally, the UCITS IV regulatory framework requires adequate valuation arrangements proportionate to the complexity of the instrument.
Besides, the Alternative Investment Fund Managers Directive (“AIFMD”) also requires non UCITs structures to have proper and independent asset valuation processes in place.
This could be done either internally (subject to safeguards and possible external review) or by external parties. In both areas, we can provide you with services to support you with these new requirements, by means of cross-valuation services, valuation models review, external party due diligence.
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