Prudential Regulation Authority Rulebook

3.1

One example of the governance and control failings referred to in paragraph 2.3, is the lack of appropriate controls around what are commonly referred to as ‘client-supplied’ prices.

3.2

For the purposes of this statement, the term ‘client-supplied’ prices, refers to prices or pricing inputs that are sourced by external valuation providers directly from their clients (insurers/investment managers/other relevant entities). Such prices, when received from external valuation providers, may have the appearance of being independent when they are not. We have seen utilisation of ‘client-supplied’ prices where the valuation function has been outsourced by an insurer, investment manager or other relevant entity.

3.3

The lack of independence inherent in ‘client-supplied’ prices may allow investment managers to manipulate their performance. In the absence of effective controls to highlight ‘client-supplied’ prices, insurers, investment managers or other relevant entities may be unable to identify and address the lack of independence and potential manipulation.

3.4

The PRA expects firms to monitor and limit their use of ‘client-supplied’ prices and to have clear visibility of all price sources used, in particular where ‘client-supplied’ prices are used in their valuations. The PRA expects that insurers and their investment managers will not supply their own prices or pricing inputs to external valuation providers without additional governance (eg appropriate sign-off) and documented justification.

3.5

In situations where practical alternatives to ‘client-supplied’ pricing are not available, the PRA expects to see robust controls including (but not limited to) independent price verification and reporting of the materiality of ‘client-supplied’ prices to senior management.