FCA Reports on Hard to Value Assets Review

The FCA has reported on its 2017 review into how asset management firms value so-called ‘hard to value’ assets, consisting of a short video with transcript into the risks, the rules, and what firms can and should do to ensure they have effective valuation policies in this area.

The FCA wants to see genuine valuation expertise and evidence of independent challenge from the portfolio managers and throughout the process. It also referred firms to IOSCO’s guidance on valuation.

The FCA encourages firms to watch the video and consider their arrangements in light of its feedback.

Watch the video. 

Read the transcript. 

Read the IOSCO final report on valuation.

PRA Consults on Securitisation Rule Changes

The Prudential Regulation Authority (PRA) has published a consultation paper entitled “Securitisation: The new EU framework and Significant Risk Transfer”. The proposals in the paper are relevant to all PRA-authorised CRD IV firms and all Solvency II firms.

The PRA set out proposals to reflect the new EU securitisation framework including the new Securitisation Regulation and amendments to the Capital Requirements Regulation (CRR)) which will apply from 1 January 2019 and amendments to the Solvency II Delegated Regulation. These proposals will introduce a new supervisory statement: "Securitisation: general requirements and capital framework" and will set out the PRA's expectations concerning general requirements in the Securitisation Regulation, applicable to all firms within scope of the CRR or the Solvency II Directive.

The PRA also proposes to:

• Change the name of its existing supervisory statement on credit risk and securitisation to "Securitisation: Significant Risk Transfer" and amend the statement to clarify the role of firms' senior management, prudential treatment of excess spread and certain aspects of the PRA’s assessment of commensurate risk transfer with respect to significant risk transfer securitisation.
• Amend its existing supervisory statement on the Internal Capital Adequacy Assessment Process (ICAAP) to clarify how firms should assess the appropriateness of different methods in measuring securitisation risk, and to specify minimum information that should be included in a firm’s ICAAP document.

Responses are due by 22 August 2018. The new supervisory statement and revisions will take effect from 1 January 2019, in line with the effective date of the EU securitisation framework.

Read the consultation paper.

FCA Retires Obsolete Guidance on Inducements and Conflicts

The FCA has published a statement that its guidance on inducements and conflicts of interest and on independent and restricted advice (FG14/1 and FG12/15 respectively) have been retired with immediate effect. Policy statement PS 18/10 explains that both pieces of guidance have been largely superseded by recent changes in FCA rules including as a result of MiFID II. The new rules on description of advice services can be found in the FCA Handbook, Conduct of Business sourcebook, Chapter 6.2B.

Read PS 18/10.