Presentation to IBRC Unit Pricing Forum 2019

1. #NotSuperYet
Unit Pricing Reviews:
Good, bad and doubtful practices
IBRC Unit Pricing Forum 2019

2. 2

3. 3
[W]hile unit pricing functions
may be able to be outsourced,
the responsibility for those
functions can’t. The
responsibility remains with the
product provider.
Steve Somogyi, then APRA member at
the launch of the Guide in 2005

4. 4
On the surface everything appears under
control…

5. 5
…but below the surface.

6. 6
A complex system is
a system composed
of many
components which
may interact with
each other.
A unit pricing system is a complex system

7. 7
Based on published reports and our own
experience, human error has been by far the
largest cause of material error in unit pricing.
This is not surprising. We are, after all, only
human. If there is a gap in your systems or
procedures, someone will find it!
Deloitte, Unit Pricing Insights, November 2006

8. 8
The management of unit pricing is a good
indicator of the overall framework for
operational risk management in an
organisation.
APRA Insight, 2nd Quarter 2003

9. 9
Checklists seem able to defend
anyone, even the experienced,
against failure in many more
tasks than we realized.

10. 10
Regular independent review of
the inputs and outputs of unit
pricing, as well as the related
systems, procedures,
methodologies and controls, can
significantly reduce the risk of
error.
These reviews should both check
accuracy and consider whether
the related processes continue to
be relevant.

11. 11
Give unit pricing a
high profile and
resources
Comply with your
legal obligations
Build an effective risk
management culture
Establish a policy
framework
Manage complexity
and diversity
Establish clear
delegations and
accountabilities
Design effective
reports for
monitoring
Manage change
effectively
Strategic
unit pricing
issues
Maintain robust
systems and
processes

12. 12
Many pieces of information are
used to calculate one unit price
Complex
structures
Forward pricing or
historic pricing
Manual systems and
workarounds
Backdating
Transaction
costs
Unit pricing issues common to many products

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Why errors occur…

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Finding errors

15. 15
Some of things that can go wrong (and have)
Daily portfolio valuations do not incorporate all trading activity
on a timely basis
Regular reconciliations of the fund’s investment holdings to the
custodian’s statements may not be performed
Inadequate controls and review procedures do not identify
errors in recording trades
The valuation of thinly-traded securities may be inappropriate
leading to mis-statement of the portfolio value
Errors are made in the setting up of new codes on the portfolio
valuation systems (e.g. wrong code, invalid code)
There may be inadequate controls over the IT process to ensure
that the correct version of the vendor feed is used.
FX rates are used which are inconsistent with the timing of the
valuation point
Reviews are not carried out for prices in unusual markets
Incorrect tax rates used. Changes in tax rates not updated on
timely basis in unit pricing calculations.
Incomplete or inaccurate calculation and actualisation (the
process of payment and clearing the provision) of tax.
Inconsistent/incorrect number of units recorded in the
investments system/unit pricing system/administration system
Fees and charges are inconsistent with those in the policy
documentation
Unauthorised access to the unit pricing system
Inappropriate manual override of calculated unit price.
Methodology is inconsistent with policy documentation due to
inadequate change processes.
Product changes not reflected as appropriate or inconsistent
with actual unit pricing practice
Unit pricing errors to identify any recurring causes of error are
not recorded or the log of errors is not reviewed.

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Unit pricing errors in the press

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18. 18
Is it an error?
Adjustments to unit price, if
based on sound policy, are not
errors
Judgement may be applied to
develop estimates in some
circumstances

19. 19
Governance cycle
Policy
Implement
Monitoro Accountability
o Sign-off
o Review
o Board
o Regulators
o Industry practice
o Process
o Systems
o Documentation

20. 20
The problem is not that there
are problems. The problem is
expecting otherwise and
thinking that having problems
is a problem.
Theodore Rubin

21. @stephenhuppert
#NotSuperYet