Derivative Valuations at UCITS Funds – Regulatory Requirements and Best Practices

OTC Valuations Limited (OTC Val), a leading provider of independent valuation and transparency reports for structured products and OTC derivatives, is pleased to announce it has released a white-paper outlining the regulatory requirements and best practices at UCITS funds for derivative valuations.

Key points from the paper, available from www.otcvaluations.com, include:

OTC derivatives are now permitted to be used as part of a UCITS’ general investment policy.

UCITS must have a primary valuation source that is verified by an independent third party or through an independent unit within the UCITS.

All OTC derivative valuations should be verified on a daily basis.

There are considerable costs and benefits of automating a valuation process, where some UCITS will take the challenge of bringing the process in-house process, while others will substantially benefit by outsourcing the process.

Bob Sangha, partner at OTC Val, notes that “while most jurisdictions have accepted the counterparty valuation as the primary source, all jurisdictions mandate price verification by an independent source. And while the frequency of price verification ranges, best practice is moving towards weekly and daily reports. These valuation reports should be sufficiently transparent such that the UCITS is able to readily understand the results.”