SD-08.4 — Fair-Value Governance

Business Domain: BD-08 Valuation & Pricing (Middle office) · Applies: BOTH

Purpose

Governs how the firm values everything it holds — the valuation policy, the pricing hierarchy, the methodologies, and the committee that adjudicates the hard cases. SD-08.4 owns the rules of valuation, not the production of any one mark. It exists because a valuation is only as trustworthy as the governance around it: every other BD-08 Service Domain operates inside the policy SD-08.4 sets, and a contested or hard-to-value mark is escalated to its pricing committee. This is the Service Domain that is never delegable — a firm may outsource valuation production to a fund administrator, but the valuation policy and oversight remain its own responsibility (SEC Rule 2a-5’s “valuation designee” oversight, AIFMD Article 19). SD-08.4 is not valuation model governance — the enterprise model inventory and independent validation are SD-14.4’s; SD-08.4 governs the valuation policy and outputs, not the model lifecycle.

Service Operations

Maintain the valuation policy — own and version the firm’s valuation policy: the methodologies, the pricing hierarchy, the source-waterfall, the tolerance thresholds and the stale-price rules.
Operate the pricing / valuation committee — convene the committee that reviews and approves valuations, adjudicates contested marks and signs off the periodic valuation.
Classify the fair-value hierarchy level — determine and govern the Level 1 / 2 / 3 classification of each instrument under IFRS 13 / ASC 820, and the movement of instruments between levels.
Oversee pricing vendors and third-party valuers — approve, monitor and periodically review the pricing-data vendors, evaluated-pricing providers and external valuers the firm relies on.
Oversee a delegated valuation provider — where valuation production is delegated to a fund administrator or valuation agent, exercise the firm’s retained oversight of that provider.
Govern fair-value disclosure — own the valuation inputs to the fair-value disclosures in the financial statements and the fair-value-hierarchy reporting.

Inputs and outputs

Inputs: the valuations produced by SD-08.1, SD-08.2 and SD-08.3; price-challenge and IPV findings from SD-08.6; auditor and regulator feedback; pricing-vendor performance evidence.
Outputs: the valuation policy, the approved valuations, the fair-value-level classifications and the committee minutes — consumed by every BD-08 Service Domain, SD-12.9 Fund Accounting & NAV, the BD-13 reporting domains, SD-14.8 Internal Audit and the external auditor.

Entities

Consumes: E-07 Valuation (any method — governance runs across the observable-price, mark-to-model and manager-mark / appraisal valuations) and E-02 Instrument / Asset; the valuations produced by SD-08.1, SD-08.2 and SD-08.3; the SD-08.6 price-challenge and IPV findings.
Owns: none as a master entity — SD-08.4 governs E-07 Valuation (E-07 names SD-08.4 as its governing Service Domain) through the valuation policy and the fair-value-level classification. The policy itself is currently a process artefact.
Open question: whether a Valuation Policy entity is warranted — a versioned, owned policy record carrying the methodologies, the pricing hierarchy and the tolerance thresholds, parallel in shape to other governance-artefact entities.

Standards

IFRS 13 / ASC 820 fair-value measurement and the three-level hierarchy.
SEC Rule 2a-5 — the valuation designee and the good-faith fair-value determination — and AIFMD Article 19 — the valuation function and its independence.
IPEV and IVS as the methodology standards the policy adopts.
COSO and the internal-control frameworks — the pricing committee is a key control, evidenced to SD-14.7 Internal Control & Assurance.

Open extensions

The Valuation Policy entity — the open question above.
The fair-value-level (1 / 2 / 3) classification sub-model and the level-transfer rules.
The pricing-committee operating model — membership, cadence and escalation thresholds.