Stricter guidelines to be implemented following concern over independence of valuers
The RICS is set to strengthen oversight of property valuers after a report published today recommended sweeping rule changes.
The review, commissioned by RICS’ standards and regulation board (SRB) makes 13 recommendations (see box below) covering valuation practices which have been accepted by the board.
The review, launched in response to concern that valuers are not always independent in their investment performance reporting and not up to speed with the market, calls for more consistent separation between valuation and advisory teams; mandatory rotation of valuers by clients, the appointment of valuation compliance officers by agents, guidance on behaviour expected by valuers and more consultation with non-executive directors.
It recommends the use of discounted cash flow when evaluating property investment.
RICS’ SRB immediately pledged to begin a programme of work to implement the recommendations.
It will focus on three “over-arching” changes initially – the introduction of a Valuation Compliance Officer role for RICS-regulated firms undertaking valuation; the creation of a dedicated Valuation Panel under the aegis of the SRB and further guidance on the culture and behaviour expected of valuers.
The board will also consult with other regulators to scope any changes needed to its valuation standards and related regulatory framework.
Dame Janet Paraskeva, chair of the RICS SRB, said: “These changes are critical to ensure that RICS-regulated professionals and firms operating in this sector remain relevant and trusted. The board welcomes and accepts all 13 recommendations of the review.”
The report follows the unrelated news this week that government plans to legislate to enable it to commission regular reviews of RICS governance.
1 – Commissioning and receiving valuation reports RICS should work with appropriate stakeholders in standardising governance arrangements for commissioning and receiving valuation reports for high-risk and ‘regulated’ valuations.
2 – Valuation and advisory activities Valuers, with the support of RICS, should ensure that the separation of valuation from advisory activities within firms is consistently applied in respect of the use of valuation data and instructions.
3 – Rotation RICS should develop a time-specific, mandatory procurement and rotation process for valuers.
4 – Compliance role RICS should build on its existing ‘RICS responsible principal’ obligation by developing a Valuation Compliance Officer role to specifically cover valuation process and conduct.
5 – Raising concerns RICS should ensure it has clearly signposted processes for its regulated members and other stakeholders to raise concerns about ethical conduct and address, amongst other issues, improper pressure placed on valuers.
6 – Quality assurance panel RICS should create a dedicated, independently-led valuation regulatory quality assurance panel, under the jurisdiction of the RICS Standards and Regulation Board.
7 – Valuation audit trail The Red Book should include further standards around the conduct and recording of valuation instructions and meetings between client and valuer.
8 – Analytical approaches (i) Discounted Cash Flow The valuation profession should incorporate the use of discounted cash flow as the principal model applied in preparing property investment valuations.
Analytical approaches (ii) Advanced Analytics RICS should improve the knowledge and application of valuers in respect of advanced analytical techniques.
9 – Global standards RICS should maintain a record of valuation standards adoption and application in countries outside the UK where significant numbers of its Registered Valuers operate, in order to inform the extension of regulatory requirements and support to valuers.
10 – Standardised property risk advice RICS should develop a framework to standardise property risk advice.
11 – Post-qualification requirements and revalidation RICS should review its post-qualification requirements for valuers, and consider introducing mechanisms for regular revalidation of valuers.
12 – Diversity RICS should continue to build on its important work to ensure a diverse and inclusive valuation profession.
13 – Culture and behaviour There is a need for further specific RICS guidance to clarify RICS’ expectations around the culture and behaviours expected of RICS professionals in the pursuance of valuation activities.