Frankfurt Summit: Panel Highlights Need for Improved Due Diligence in Pricing Processes

Firms need to complete thorough due diligence of methodologies and quality checks adopted by vendors when taking evaluated pricing services, according to panelists at the Frankfurt Financial Information Summit.

Peter van Kleef, managing director, Lakeview Capital Market Services, said as part of the due diligence process, firms should review price quality and question the provider's motives for coming up with a specific price. "There's no point in paying anyone for a price if it's not the real price," he said.

Anthony Belcher, director, EMEA valuations, Interactive Data, said that when entering into a relationship with a provider, firms could ask vendors to have a conversation with the evaluators themselves and ask to see the methodology documents.

The quality-checking process also needs to continue after the contract has been signed. Belcher said the next stage of the due diligence process will happen on an ongoing basis, and the questions to ask include: "What are the assumptions they used?" and "What's the market color?"

In addition to monitoring price changes continuously, Belcher advised firms to complete periodic reviews on an annual basis "to ensure your original investigation still holds true."

The focus on evaluated prices and transparency in general has increased following the financial crisis, and there has been growing pressure on data managers to ensure prices are accurate. "As long as the crisis continues, people will ask questions," said Kleef, adding that he expects to see some change when the market recovers.

Belcher said: "I don't see it returning to where we were before. I think if you look at the regulators, they are not suddenly going to disappear overnight."

Even if the requirements remain the same, resources available to customers are set to continue to change. Kleef said he expects to see evaluations being processed faster, and "we are going to get more accurate data."