The SEC is proposing rules that clarify for the first time that fund boards can hire registered investment advisors to satisfy their valuation obligations.

A proposed rule released yesterday would permit a fund’s board to assign the determination of fair value to the fund’s investment advisor, subject to additional conditions and oversight requirements, the SEC said in a press release. The agency is accepting public comments on the proposal until July 21.

“The way a fund values its investments is critical to our Main Street investors,” SEC Chairman Jay Clayton said. “It affects the fees they pay, the returns they receive, and the value of the fund shares they hold.”

The proposal “would improve valuation practices, including oversight, thereby protecting investors and improving market efficiency, integrity and fairness,” Clayton added.

The commission last addressed valuation practices in a comprehensive manner in releases issued in 1969 and 1970. Since then, markets and fund investment practices have evolved considerably. Many funds now engage third-party pricing services to provide pricing information, particularly for thinly traded or more complex assets.

Regulatory developments over the past 50 years have altered how boards, investment advisers, independent auditors and other market participants address valuation under federal securities laws, the SEC stated.

“The proposal recognizes and reflects these changes, including the important role that funds’ investment advisers may play and the expertise they may provide,” the agency said.

The proposed rule would establish requirements for satisfying a fund board’s obligation to determine fair value in good faith for purposes of the Investment Company Act of 1940, including developments in the market, ithe increase in the variety of asset classes held by funds and the increase in both the volume and type of data used in valuation determinations, the SEC said.

Despite giving boards the ability to hand off fund valuations to RIAs, the proposal makes clear that a board’s oversight of this process must be active.

For instance, the rule would require a board to assess and manage material risks associated with fair value determinations; select, apply and test fair value methodologies; oversee and evaluate any pricing services used; adopt and implement policies and procedures; and maintain certain records.

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