Global banks and prudential regulators also represented on the Board which is tasked with advancing International Valuation Standards (IVS) for financial instruments

LONDON: Gavin Francis, Group Chief Accounting Officer HSBC, has been appointed Chair of a new board tasked with advancing global standards for financial instrument valuation.  The Financial Instruments Valuation Standards Board (the Board) brings together valuation leaders from across the financial world to develop common protocols which will underpin valuation in this burgeoning and international asset class. The Board includes representatives of international banks, prudential regulators, valuation and accounting firms.

Valuing assets as multifaceted as financial instruments presents numerous challenges, not least of which the plethora of methods and assumptions which are routinely applied depending on the context.  As the market for financial instruments grows in the diversity of tradable products and the complexity of their structures, so the valuations placed on these assets increasingly feature at the centre of debate.  In the absence of internationally agreed standards for valuing financial instruments, prudential regulators including the US Securities and Exchange Commission have raised concerns[1].

“The valuation of financial instruments in a global market estimated in excess of US$500 trillion continues to be a hot topic. As the asset class grows in volume and complexity, calls for internationally agreed standards governing their valuation have understandably been amplified.  We are delighted that Gavin has agreed, and been given the opportunity by HSBC, to Chair this new board which seeks to enhance transparency and confidence in financial instrument valuations.  His expertise and judgement as a leader within the global banking sector, and through his dedicated work with the International Accounting Standards Board (IASB) makes him the ideal chairperson for this collaborative and important initiative.” Sir David Tweedie Chair of the IVSC Board of Trustees

Francis, a former investment banker, is familiar with the task of standards setting having spent a number of years as Director for Capital Markets at the International Accounting Standards Board (IASB) and, more recently, as Vice Chair of the International Financial Reporting Standards (IFRS) Advisory Council since 2015, a position through which he represented the Institute for International Finance.

“I am looking forward to working with my fellow Board members to enhance trust and confidence in the valuation of financial instruments through the development of high quality, global standards.  This is a key area of focus especially for investors, regulators, preparers and auditors of financial statements.” Gavin Francis IVSC FI Board Chair & Group Chief Accounting Officer HSBC

“Over the last decade numerous international regulators have expressed the need to improve the quality and transparency of financial instrument valuation.  I was fortunate to be a part of these discussions while a financial services Fellow at the Securities and Exchange Commission.  Through the IVSC’s leadership, it is encouraging to see such a diverse group of stakeholders who want to be involved in improving our financial markets.” Peter C. Melvin, Ph.D. – IVSC FI Leader and Financial Services Principal at EY

Partner with KPMG and national leader for financial instrument valuation, Thomas Lee, has been appointed Vice Chair of the new board.  Lee has 17 years’ experience with KPMG working with major financial institutions and corporations in Canada and internationally.  Prior to leading KPMG’s financial instruments valuation service, Lee spent a number of years practicing business valuation and holds the designation of Chartered Business Valuator (CBV).

The Board is comprised of the following members:

  • Gavin Francis, Chief Accounting Officer, HSBC (Chair)
  • Thomas Lee, Partner, KPMG (Vice Chair)
  • Raj Brar, Head of Division, Bank of England Prudential Regulatory Authority
  • Daniel Kahn, Principal, Economic Advisory and Complex Securities Group, EY
  • Toshiyuki Kitano, Director, KPMG
  • Cindy Ma, Managing Director, Houlihan Lokey
  • Krishna Nadella, Head of Content and Regulation Sales, Bloomberg
  • Fernanda Diaz Rodriguez, Academic, Derivatives and Banking
  • Ben Ryan, Head of Global Valuations Group, Bank of America
  • Doug Summa, Partner, PwC
  • CK Zheng, Global Head of Valuations, Credit Suisse

“As a global investment bank, Houlihan Lokey routinely values financial instruments of all types across multiple jurisdictions.  There is no doubt in my mind that in order to preserve the integrity of financial markets, valuation providers need to work to, and be empowered by consistent valuation standards.  As the marketplace for financial instruments expands and becomes ever more international, the need for common standards underpinning their valuation grows.” Cindy Ma – Board Member and Managing Director at Houlihan Lokey

The Board will begin work to develop international standards in early 2019.  As their work progresses, updates will be published on IVSC’s website, including details of public consultations.  The Board will also work closely with the IVSC’s Tangible Assets Standards Board and Business Valuation Standards Board on issues which cut across all asset classes, in an effort to enhance the entire global valuation profession.

Adding further to the IVSC’s focus in this area, a number of financial instruments leaders have also been appointed to join the Council’s overarching Standards Review Board. Colin Martin (Partner at KPMG), Susan DuRoss (Chief Markets Officer at Harvest Investments) and David Larsen (Managing Director at Duff and Phelps) will join Gavin Francis in representing the sector on the SRB.

In advance of the Board’s formation, four working groups of leading experts have convened throughout 2018 to explore current practices and to identify areas for improvement in the valuation of financial instruments. Their work has looked at valuation in the financial reporting process, data availability and governance.  The working groups have brought together representatives from the following organisations:

American Institute of Certified Public Accountants (AICPA) • Bank of America • Bank of England PRA • Bloomberg • BNP Paribas • CFA Institute • Citi • Credit Suisse • Deloitte • Duff and Phelps • EY • Financial Accounting Standards Board (FASB) • Goldman Sachs • Grant Thornton • Harvest Investments • Houlihan Lokey • HSBC • IHS Markit • International Accounting Standards Board (IASB) • International Auditing and Assurance Standards Board (IAASB) • JP Morgan Chase & Co • KPMG • Morgan Stanley • MUFG Bank • Public Company Accounting Oversight Board (PCAOB) • PwC • US Securities and Exchange Commission (SEC) • Société Générale • UBS.

 

 

[1] See for example speech by SEC Chief Accountant, Paul Beswick, to the AICPA 2013 Conference on Current SEC and PCAOB Developments, 9 December 2013, in which he highlights the SEC’s growing focus on FI valuation under regulatory capital requirements[1] https://www.sec.gov/news/speech/2013-spch121113pb