"Material uncertainty" in valuation

Red Book considerations following FCA rule changes.

The UK Financial Conduct Authority (FCA) recently published their response to their consultation on Illiquid Assets and Open-ended Funds.

In the course of preparing and submitting the RICS response to this document, it became evident that the important but, in certain respects subtle, distinction between normal valuation tolerances and "material uncertainty" set out in the Global Edition of the Red Book at VPS 3 Section 2.2(o) and VPGA 10 may not always be fully appreciated by valuation users and other stakeholders. Whilst it is implicit in the standards and guidance that where "material uncertainty" exists it should be flagged and a specific comment added, it is important from the point of valuation users that the term "material uncertainty" is expressly used as a signal in circumstances where VPS 3 Section 2.2(o) applies.

RICS are currently consulting on a small refinement to the Global Edition to take effect from early next year to make the above clear. Even prior to the amendment, where material uncertainty is being identified, valuer best practice should be to explicitly report the term "material uncertainty" in all relevant cases of regulated purpose valuations under UK jurisdictions (see UK VPS3).

Members working in this area are reminded to refer to the relevant section of the Global Edition of the Red Book, including the definition of 'material uncertainty' as explicitly different from general market uncertainty. It is also incumbent on members undertaking valuations for this purpose to keep fully up to date of the implications under FCA rules.