Background

On 29 May 2026, MAS published an information paper on valuation practices for assets under management for Fund Management Companies (“FMCs”). FMCs are required to subject assets under its management to independent valuation and ensure fair dealing with customers. This paper provides supervisory guidance and best practices regarding 4 broad areas: establishing effective governance and controls, policies and procedures, ongoing price validation checks, and valuation approaches and methodologies.

MAS Key Observations

1. Governance: Lack of independence in the way the valuation is conducted and absence or insufficiency of the Terms of Reference, resulting on objectivity lapses from conflicts of interests’ situations in some FMCs.
   
2. P&Ps: Inadequate P&Ps that either did not reflect actual practices or lacked specific guidance—such as how to value different types of collateral for impaired loans. Additionally, there was non-compliance with existing P&Ps (e.g., missing valuation committee approvals) and insufficient review frequency, with some firms failing to update their P&Ps annually or after material changes like valuation committee composition or investment strategies.
   
3. Ongoing Price Validation Checks: Insufficient processes and weaknesses in spotting and evaluating securities with outdated prices, lack of thoroughness in confirming price accuracy with third-party service providers and account for sudden market dislocations, illiquidity adjustments, or structural price stalls, and poor record keeping.
   
4. Valuation Approaches and Methodologies: Valuation approaches deficiencies included inappropriately treating restructured non-performing loans as performing (overstating NAV and management fees), failing to verify portfolio company inputs against audited figures, and neglecting to establish appropriate valuation policies for complex digital assets. Additional shortcomings included delays in communicating fair valuations to fund administrators, lack of monitoring for available market prices on fair-valued securities, and insufficient initial and ongoing due diligence on third-party valuation providers regarding their independence, qualifications, and methodologies

Regulatory Expectations to Address Gaps

1. Governance Frameworks: Clear oversight by Board and Senior Management (“BSM”), including regular reporting to BSM and escalation procedures for valuation issues to ensure timely actions can be taken.
   
2. Independent Valuation Structures: FMCs are expected to form an independent valuation committee with clear terms of reference (e.g. composition, meeting frequency, and quorum) or designate segregated personnel to review and verify asset pricing. (e.g. separate valuation function or third-party valuer).
   
3. Comprehensive Valuation P&Ps: Regular maintenance of P&Ps covering all asset classes, identifying clear roles and responsibilities for internal and third parties.
   
4. Price Validation Checks: Firms are expected to implement independent and ongoing price validation checks (e.g. price variance, stale price, index, NAV checks) for identification and timely investigation of anomalies.
   
5. Competent Third Parties: FMCs must exercise oversight of third-party service providers by verifying their governance, policies, systems, and controls before engagement, and periodically confirming they remain effective, while maintaining proper documentation to ensure accountability.
   
6. Fair Valuation Methodologies: Use appropriate methodologies consistent with accounting standards and market practices to assess the complexities (e.g. digital assets) of the underlying asset classes and provide a true and fair value of the asset.

What’s Next?

Management must immediately review their funds’ governance structures and implement valuation functions are entirely distinct from front-office investment desks. FIs will face elevated scrutiny and will need to justify various asset pricing through fair valuation methodologies, especially illiquid assets. Failure to do so will likely result in immediate administrative or regulatory reprimands.

How Can We Help?

Capital Governance can assist financial institutions in:

1. Reviewing Governance Framework: Conduct a gap analysis and designing standard operating procedures for AUM valuation
   
2. Refreshing P&Ps: Proposing tailored structural improvements and policy enhancements to ensure your asset-valuation processes match MAS expectations.
   and much more …