9.1.2 Monitoring and controls

Credit institutions should monitor and review the valuations performed by internal or external appraisers on a regular basis as set out in this section.

Credit institutions should develop and implement a robust internal quality assurance policy and procedures for valuations conducted internally and externally, considering the following:

• a) The quality assurance process should be carried out by a function that is independent from the function conducting the initial valuation, loan processing, loan monitoring and the underwriting process.
• b) The independence of the external appraiser selection process should be tested on a regular basis as part of the quality assurance process.
• c) An appropriate, similar sample of internal and external valuations should be compared with market observations on a regular basis.
• d) Back-testing of both internal and external valuations should be carried out on a regular basis.
• e) The quality assurance process should be based on an appropriate sample size.

In addition, the internal audit function should regularly review the consistency and quality of the valuation policy and procedures, the independence of the appraiser selection process and the appropriateness of the valuations carried out by both external and internal appraisers.