IPEC adopts ZecZim directive

The Insurance and Pensions Commission (Ipec) has adopted the valuation directive issued by the Securities and Exchange Commission (SecZim) to guide the securities market in the valuation of equities and property.

Ipec Commissioner, Dr Grace Muradzikwa, said the commission considered the methodologies provided under the SecZim directive, given the inconsistency characterising valuation methodologies applied by the Insurance and Pensions Industry.

SecZim issued directive SS 29/01/2021, which sought to standardise listed equities and property valuations.

The Directive applies to Securities Market Intermediaries.

“Following the consideration, the commission has adopted the methodologies prescribed through the SecZim directive,” she said.

According to the Ipec directive, the Volume Weighted Average Price (VWAP) produced by the Securities Exchanges shall be adopted for the valuation of all listed equities.

On properties, the board of a regulated entity shall ensure that it, or the persons that it engages have the necessary expertise, internal control systems and risk management mechanisms to invest in and manage investments in properties.

The board shall also exercise due diligence in maintenance of the properties and ensure that there is no avoidable deterioration in their value while ensuring income from the properties is collected and adequately insure properties against impairment and damage.

Regarding the valuation of property, the board shall appoint a valuer to conduct a valuation of the properties, which have vested in the entity or are proposed to be acquired by the entity.

“The valuer must be duly registered and in good standing with the Valuers Council of Zimbabwe (VCZ) in terms of the Valuers Act [Chapter 27:18]. The regulated entity shall not use the same valuation agency

(valuer) for a period exceeding five years.

“That is, if an entity contracts the same valuer for a continuous period of five years, the valuer must be changed at the end of the fifth year,” reads part of the directive.

The directive said that all valuations shall be made in the official functional currency of Zimbabwe, where applicable, converted from another currency at the prevailing official exchange rate when the valuation is made.

“However, where business is transacted in a currency that is different from the official functional currency, for example USD fund when the functional currency is ZW$, valuations should be done in the currency of transaction.”

Any assumptions used in the valuation shall be clearly stated in the Valuation Report, and shall be realistic, relevant, and adequately substantiated by reference to physical, functional and market factors.

According to Ipec, the valuations shall be carried out and reported in accordance with International Financial Reporting Standard (IFRS) fair value principles as well as International Valuation Standards.

“Upon contracting the valuer, the regulated entity must specify the purpose of the valuation and the valuation date. 3.12. Where a margin of error occurs on valuations performed by two different valuers, a 15 percent cap on difference should be maintained. In the event of a breach of the upper limit, another independent valuation must be conducted,” reads part of the directive.

In terms of disclosures and reporting, the regulated entity shall at the end of each quarter receive a report from its investment management company.

The report shall include, at most minimum details of any material litigation, potential impact and any events or circumstances, which is likely to impact on the future performance of the regulated entity.-ebusinesswekly