IVSC Financial Standard Group Identifies Valuation Types as Focus Area

Brussels - The International Valuations Standards Council (IVSC) expert group, formed this summer to develop a standard for valuation of illiquid or complex financial instruments, has identified the treatment of different types of valuations as a potential focus area, officials tell Inside Reference Data.

London-based Ian Blance, principal of independent consulting practice IBC, and IVSC's technical consultant, says the group has identified that some of the areas to focus on can be best practices and different types of valuations. "Different types of valuations should be treated differently in terms of credibility," he says, explaining that there is currently nothing that applies to evaluated prices, and dealer quotes, for example, are different when used for accounting purposes.

The group, consisting of 14 industry experts and observed by the International Accounting Standards Board (IASB), aims to set guidelines for valuation practices and ensure standards are set by market practitioners as opposed to accountants. "We are trying to work with the IASB to set these market standards," says London-based Peter Jones, global head of valuation scenario services, Standard & Poor's, who is a member of the group.

IVSC originally focused on real estate valuation, but was revamped earlier this year with a remit to expand standard-setting to financial asset valuation. IVSC chairman Michel Prada, speaking at the Valuation & Risk Policy Forum in Brussels in July, said: "Valuation has come to the forefront of the debates about the (financial) crisis." There has been a growing focus on improving standards for valuations, a topic which was also recently discussed by G20 leaders. "We have to re-store credibility," said Prada.

But the group is not intending to validate specific valuation models. It is more about high-level principles, explained Prada. "We recognize there is no unique way to valuate," he said, but adding that one example of a potential guideline would be to avoid referring to the market price when there is no liquidity.