Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p20
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 54300–57254

If an ADI uses valuations in determining the fair value of security, the ADI must require valuers and appraisers, in preparing their valuation reports, to adopt the valuation standards and practices of any relevant professional bodies. For example, in the case of property valuations, the standards and practices of the Australian Property Institute or equivalent local or offshore bodies must be used. Valuation reports must be based on the standard format advocated by any relevant professional bodies.
13.         An ADI must have policies and processes directed at ensuring the reliability of the valuation processes and valuations received in respect of security held. This must involve independent and regular internal reviews of valuations and automated valuation methods results by appropriate management or audit personnel and formal reviews by an independent valuer.
14.         An ADI's policies and processes must provide for regular assessment of security values so as to ensure that the fair value of security underpinning provisioning and reserves, and any security coverage measures applied to exposures, is timely and reliably reflects values which an ADI might realise if needed. This is especially important where exposures are secured by assets that are susceptible to significant changes in value, or where the margin for diminution of value of security is small.

Valuation of security in the form of property
15.         For the purposes of determining the fair value of security involving property, an ADI must assume:
       (a)          a property would be accessed in the near future;
       (b)          the period for marketing a property would be up to 12 months, although a longer period (up to a maximum of 24 months) may be adopted for specialised or unusual properties when professional valuers advise that this is appropriate; and
       (c)          market conditions and asset values remain static over the marketing period. Marketing periods must be retrospective and assumed to have elapsed at the date of valuation, rather than incorporating any improved market conditions.
16.         Property assets must be based on fair values. In determining fair values, an ADI must use conservative estimates in imputing future income streams, such as lease payments which are not already contracted. An ADI must ensure key assumptions used in the valuation approach are appropriate and there is sufficient evidence to support the assumptions. An ADI must review and be satisfied of the reasonableness of key assumptions before the valuation takes place.
17.         In determining fair values, any valuation based on highest and best use rather than existing use must be adequately supported and documented.[9] Where applicable, the valuation report must set out how highest and best use was determined.
18.         In some circumstances, it may be difficult to determine the fair value of property assets that have not yet