IOSCO Proposes Updated Valuation Standards for Investment Funds

The International Organization of Securities Commissions ("IOSCO") proposed updates to its 2013 Principles for the Valuation of Collective Investment Schemes and its 2007 Principles for the Valuation of Hedge Fund Portfolios.

In a new consultation report, IOSCO reviewed the adequacy of these sets of principles in light of evolving markets and heightened illiquidity risks and concluded that both frameworks require substantial revision. IOSCO said it would develop a single set of recommendations that would replace the existing frameworks. The organization urged member jurisdictions to consider how updated valuation standards can better promote investor fairness, strengthen market integrity, and reflect today’s fund management practices. 

IOSCO recommended:

1. Policies and Governance. IOSCO stated that responsible entities must establish comprehensive and well-documented valuation policies, supported by an oversight framework—such as a valuation committee—with sufficient independence. IOSCO emphasized that governance arrangements should explicitly account for stressed market conditions, ensuring that valuation processes remain reliable when liquidity and price discovery deteriorate.
2. Conflicts of Interest. IOSCO found that valuation conflicts remain a material risk, particularly for entities managing less liquid or privately sourced assets. IOSCO advised that responsible entities identify, manage, and monitor conflicts throughout the valuation process and disclose any residual conflicts that cannot be fully mitigated.
3. Valuation Methodology. IOSCO reaffirmed that all assets must be valued at fair value, prioritizing quoted prices where available. IOSCO stated that for less liquid and illiquid assets, model-based approaches may be used but must be supported by calibration, back-testing, and sufficient documentation. IOSCO also highlighted the need for rigorous challenge processes when subjective inputs are used.
4. Price Overrides. IOSCO noted that price overrides—when internal estimates replace vendor or market prices—can introduce significant discretion and risk. IOSCO advised that entities maintain clear policies governing overrides, ensure proper documentation, and subject any overrides to independent review.
5. Consistency and Ongoing Review. IOSCO emphasized that valuation methodologies must be applied consistently across similar assets and across funds with comparable strategies. IOSCO stated that responsible entities should conduct periodic reviews, at least annually, to confirm that models, inputs, and assumptions remain appropriate in changing market conditions.
6. Third-Party Valuation Service Providers. IOSCO reported that increased reliance on external valuation agents heightens the need for strong due diligence and ongoing oversight. IOSCO highlighted that while third-party providers may support valuation processes, ultimate responsibility for valuations rests with the responsible entity, which must ensure independence, competence, and data quality.
7. Timely Valuation. IOSCO underscored that subscriptions and redemptions must rely on forward pricing, and funds must be valued on any day that units are traded. IOSCO also warned of risks associated with stale valuations, advising that entities adopt controls to ensure valuations remain current, especially for assets whose prices do not update frequently.
8. Disclosure. IOSCO observed that investors require transparent valuation information to assess fund risks and pricing. IOSCO recommended that responsible entities provide investors with NAV at no charge and disclose key aspects of valuation methodologies, governance structures, and material conflicts of interest.
9. Pricing Errors. IOSCO found that policies for detecting and correcting pricing errors are critical to investor protection. IOSCO advised that material valuation errors must be remediated promptly and that harmed investors must be fully compensated, with governance structures in place to ensure timely escalation and resolution.
10. Record Keeping. IOSCO introduced a new recommendation requiring responsible entities to maintain detailed and accessible records supporting all aspects of the valuation process. IOSCO stated that appropriate documentation is essential to demonstrate compliance, facilitate oversight by auditors and regulators, and ensure transparency. 

Comments are due by February 2, 2026. IOSCO said it expects to publish final recommendations in mid-2026.