Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p19
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 51307–54555

security valuation needs, it must establish robust selection and review mechanisms. Factors that must be considered in the selection process include:
       (a)          professional qualifications required;
       (b)          relevant experience, including local knowledge;
       (c)          breadth of expertise to cover both standard and specialised security assessments; and
       (d)          appropriate professional insurance cover.
8.             If an ADI relies on the use of alternative valuation methods such as desktop assessments, kerbside assessments and automated valuation methods to produce a security valuation, it must have appropriate policies and processes which address:
       (a)          when valuations would be provided by the alternative method;
       (b)          monitoring, validation and reporting of valuation data; and
       (c)          asset values including adequate haircuts for conservatism when using automated valuation methods.
9.             An ADI contemplating the use of alternative valuation methods must subject proposals to thorough analysis and develop a risk management capability that includes:
       (a)          a hierarchy of acceptable methods of determining value that is appropriate to the level of risk;
       (b)          analysis of the strengths and weaknesses of the relevant approaches or models being considered, including an understanding of the methodologies used, sources of data employed and how a service provider may be able to assist in reengineering the ADI's processes;
       (c)          details of any back testing of a statistically random sample of alternative methods or auditing arrangements undertaken by a service provider;
       (d)          clarity of the output to be provided and how it would be integrated with the ADI's processes; and
       (e)          ongoing monitoring of tools used, processes that capture evidence of action taken when values are deemed to be unreliable and periodic back testing undertaken by the ADI to independently validate reliability of outcomes.
10.         Policies and processes must also provide for the formulation of instructions for the conduct of valuations. Each valuation request must be the subject of specific instructions to the appraiser or valuer. These instructions must cover (as relevant in each instance) appropriate issues such as valuation purpose, valuation basis required, valuation for insurance purposes, valuation method, market summary/commentary and form of report required. Where a party other than the ADI instructs the valuer, the valuation must be appropriately endorsed for the ADI's use. In these circumstances, the valuation must be confirmed by an internal appraiser, or an external valuer, with the appropriate expertise.
11.         Where an ADI relies on a panel of approved valuation professionals, an ADI's credit risk management must provide for the panel to be regularly reviewed at least annually by the ADI.
12.         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