Valuer Registration will become mandatory in February 2016. ALESSANDRA DE LISIO summarises the main issues.
As part of the Society of Chartered Surveyors Ireland’s commitment to improving standards in the property, land and construction sectors, the SCSI and RICS will be introducing Valuer Registration (VR) on a mandatory basis, with a deadline date of February 29, 2016. This decision follows the trend of other key European markets such as the UK, the Netherlands, France and Spain, where VR has already been adopted as a mandatory requirement to demonstrate the commitment of RICS valuers to the highest standard and their openness to external scrutiny.
The financial crisis has shown that irresponsible behaviour by market participants can undermine the foundations of the financial system, leading to a lack of confidence among all parties, in particular consumers, and potentially severe social and economic consequences.
Valuation underpins nearly every financial decision we make, from home mortgages to corporate finance transactions. Any person or organisation that occupies, owns, develops or trades assets in today’s global markets needs to rely on the expertise of a valuer.
The financial crisis has shown that irresponsible behaviour by market participants can undermine the foundations of the financial system, leading to a lack of confidence among all parties, in particular consumers, and potentially severe social and economic consequences. Public confidence and trust in the valuation process are therefore vital elements that we can ensure and maintain through appropriate standards and their effective regulation.
This is why, for many years, RICS has published the Red Book, a mandatory professional standard based on the International Valuation Standards (IVS), which are recognised globally by banks, lenders and other major financial institutions.
At European level this approach has been endorsed by the European Commission, such that the Mortgage Credit Directive set the framework for reliable valuations by requiring the adoption of internationally recognised valuation standards, including those developed by RICS.
To ensure full compliance with the requirements of the Red Book, in 2011 we launched Valuer Registration, the regulatory scheme, allowing members to apply, share and maintain best practice.
Our monitoring approach
Monitoring by RICS Regulation begins the moment an RICS member signs up to VR. The online application allows us to undertake a first risk assessment followed, when necessary, by a more in-depth monitoring involving requirements such as the professional indemnity insurance (PII) and the complaints handling procedure (CHP). We keep the risk profile of our members up to date by requiring them to submit an annual return.
Only those members who pass the annual screening are entitled to use the Registered Valuers designation and our quality assurance logo. Further inspection of the work of our Registered Valuers takes place by means of desk-based reviews and regulatory review visits. Within our VR review team we have one surveyor dedicated exclusively to continental Europe, who is supported by a member of the regulation staff based in Brussels.
Thanks to the work of this team, the rollout of VR in Europe has been accompanied by a broad monitoring, covering 62 valuers employed by 32 firms in 11 countries. Not only the Netherlands, France and Spain were involved, but also Germany, Belgium, Poland, Italy, the Czech Republic, Sweden, Portugal and Hungary. The active monitoring of our Registered Valuers also included 45 desk-based reviews covering priority markets like France, Germany and the Netherlands.
Some 84% of the valuers involved in our active monitoring demonstrated the adoption of effective quality assurance processes and a high rate of compliance with the Red Book. They all showed a positive and collaborative attitude that allowed the review team to openly share remarks and suggestions. Updating the terms of engagement and valuation report templates in accordance with the latest version of the Red Book is the most frequent advice provided by our reviewer during the inspections.
More serious non-compliance – involving especially sole practitioners and small firms – was detected in 16% of cases, where the conflict of interest check was not properly recorded on file, the staff involved in the valuation were not always supervised adequately, and the definition of the basis of value was sometimes incorrect. The lessons learned allowed the review team to put together some guidelines aimed at supporting valuers – especially sole practitioners – to run adequate inspection and investigation for valuation purposes, and support their valuation with a clear audit trail.
Raising clients’ awareness
Sometimes overlooked, the role of the client is a key element to ensure the success of our monitoring scheme. For this reason we work towards the transparency of our approach and the awareness on our regulatory regime. It is a duty of each Registered Valuer to undertake a conflict of interest check and a statement to this effect should be included in the terms of engagement and in the final valuation report. The agreement of the client to the disclosure of the information related to the assignment allows our reviewer to inspect the valuation dossiers and to highlight areas of non-compliance with the Red Book.
More serious non-compliance – involving especially sole practitioners and small firms – was detected in 16% of cases, where the conflict of interest check was not properly recorded on file, the staff involved in the valuation were not always supervised adequately, and the definition of the basis of value was sometimes incorrect.
Our ambition is to raise confidence in valuation through the consistent application of our professional and ethical standards. To do so we are improving our approach to target high-risk members while promoting the benefits of our regulatory regime with both members and external stakeholders. Together with Ireland, several other European markets such as Denmark, Belgium and Luxembourg will shortly adopt VR as a mandatory requirement to make sure that all RICS valuers are actively regulated.
To sign up for VR, RICS members can visit www.rics.org/registervr, where a video tutorial is available to guide them through the process.
Alessandra de Lisio
Alessandra is Regulatory and Corporate Affairs Manager with RICS.