For the first time in more than 50 years, the U.S. Securities and Exchange Commission (SEC) is updating its rules on investment fund valuation practices
The SEC voted to adopt new rules that establish a new regulatory framework for fund valuation and, among other things, those rules will aim to clarify how funds’ boards can meet their obligations to properly value funds’ assets.
The rules allow fund boards to outsource fair value judgements to certain parties, subject to certain conditions and oversight requirements. They also increase the volume and type of data used in fund valuations.
“The rule establishes requirements for satisfying a fund board’s obligation to determine fair value,” the SEC said, adding that it also requires fund boards or valuation providers to assess and manage material risks with fair value determinations.
The commission noted that the industry has evolved significantly since it last issued rules on fund valuation practices. For instance, many funds now use third-party pricing services, particularly for thinly traded or complex assets.
At the same time, regulatory reforms have changed how boards, investment advisers, auditors and others deal with valuation issues.
The amendments aim to reflect these sorts of changes, the SEC said.
“Main Street investors increasingly access our capital markets through funds and rely on them to value their investments properly,” said SEC chairman, Jay Clayton, in a release.
“Today’s rule is designed to improve funds’ valuation practices, including by providing for effective board oversight, for the benefit and protection of fund investors,” he added.
The new rules will take effect 60 days after publication in the Federal Register, subject to an 18-month transition period.