Systems and controls
2. Authorised Persons should establish and maintain adequate systems and controls sufficient to give management and the Regulator the confidence that their valuation estimates are prudent and reliable. These systems should be integrated with other risk management systems within the organisation (such as credit analysis). Such systems are expected to include:
a. documented policies and procedures for the process of valuation. This includes clearly defined responsibilities of the various areas involved in the determination of the valuation, sources of market information and review of their appropriateness, guidelines for the use of unobservable inputs reflecting the Authorised Person's assumptions of what market participants would use in pricing the position, frequency of independent valuation, timing of closing prices, procedures for adjusting valuations, end of the month and ad-hoc verification procedures; and
b. clear and independent (i.e. independent of front office) reporting lines for the department accountable for the valuation process. The reporting line should ultimately be to a main board executive Director or equivalent.