Response to consultation on Handbook on independent valuers for resolution
1. Do you have suggestions to improving the RAs’ preparatory arrangements?
RICS believes that robust preparatory arrangements are fundamental to ensuring the effectiveness of independent valuations during resolution processes. The RICS Global Red Book emphasizes the importance of clear and structured preparatory phases, which include defining the scope of the valuation, establishing access to relevant data, and setting clear objectives for the valuation assignment.
Recommendations:
- Clarity in Scope: We recommend that Resolution Authorities (RAs) provide detailed instructions and clear definitions of the scope and purpose of the valuation assignment. This ensures that the valuer understands the precise objectives and constraints within which they must operate.
- Data Accessibility: The RA should ensure that the independent valuer has timely access to all necessary and relevant data, including historical financial information, market data, and relevant regulatory documentation. A structured data-sharing process should be put in place.
- Stakeholder Engagement: Early and consistent engagement with key stakeholders is crucial to ensure that all parties are aligned and that the valuer’s independence is respected throughout the process.
These steps align with the RICS Global Red Book guidelines on planning and executing valuations in complex situations, including distressed scenarios.
2. Do you have comments on the appointment process that could enhance process?
The appointment of valuers is a critical step in ensuring the independence and integrity of the resolution process. The RICS Global Red Book requires that valuers be selected based on their expertise, experience, and professional qualifications, while ensuring the avoidance of conflicts of interest.
Recommendations:
- Professional Qualifications: The EBA should specify that valuers must hold relevant and recognized professional qualifications, such as RICS membership, which guarantees adherence to global standards of valuation, ethics, and independence.
- Transparent Selection Process: We recommend that the EBA adopts a transparent and competitive selection process for appointing valuers. This process should include clear criteria for selection, based on the valuer’s experience, expertise, and previous involvement in similar assignments.
- Conflict of Interest Declarations: The appointment process should require valuers to submit detailed declarations of any potential conflicts of interest. The RA should establish protocols to ensure that these conflicts are mitigated or resolved prior to the commencement of the valuation.
These steps ensure that the integrity of the valuation process is maintained and that the appointed valuer can operate with full independence and objectivity.
3. Do you have suggestions to improve the assessment of independence as presented in this draft Handbook and taking into account the provisions of the RTS?
The RICS Global Red Book places significant emphasis on the independence of valuers, recognizing that independence is a cornerstone of credibility in the valuation process. The assessment of independence in the draft handbook is an important aspect of ensuring objectivity.
Recommendations:
- Independence Criteria: RICS suggests that the EBA incorporate more stringent independence criteria into the assessment process. These criteria should include not only the absence of financial ties or relationships with the bank in resolution but also any prior engagements that may compromise perceived impartiality.
- Regular Audits and Reviews: We recommend implementing regular audits or peer reviews of valuers’ work as part of the ongoing assessment of independence. This will ensure that the valuer’s work remains impartial throughout the resolution process.
- Ongoing Monitoring: Independence should not be assessed only at the point of appointment but should be monitored throughout the engagement. This can be done by requiring periodic updates or declarations from the valuer.
By strengthening the assessment of independence, the handbook will help safeguard the integrity of valuations in the resolution context, aligning with the best practices outlined in the RICS Global Red Book.
4. Do you find the examples provided in this Handbook to be meaningful (i.e. they have a high frequency of occurrence in reality)? In these examples, do you find the proposed RA’s assessment to be clear and satisfactorily explained?
RICS acknowledges the inclusion of practical examples in the handbook and finds that such examples are generally helpful for understanding complex scenarios. However, the realism and frequency of the examples in the handbook need to reflect actual conditions that valuers face in resolution contexts.
Recommendations:
- Realistic Scenarios: We recommend that the examples provided in the handbook be more closely aligned with real-world situations that valuers frequently encounter, such as asset impairments in distressed markets or illiquid asset valuations. The examples should illustrate the practical challenges valuers face in gathering data, applying suitable methodologies, and dealing with market volatility.
- Clearer Explanations: The handbook should provide more detailed explanations of the RA’s assessments in each example, including a breakdown of the valuation methodologies used, key assumptions made, and the rationale behind the final conclusions. This clarity will help both valuers and RAs understand the appropriate steps to take in various scenarios.
These improvements will make the examples more applicable and useful to valuers in the field, helping them to apply the principles in complex resolution situations.
5. Do you find the safeguards proposed satisfactory? Are you aware of other safeguards that could be used in this process? Please detail how you would put such safeguards in place and how they would counter the instances of conflict of interest.
RICS strongly supports the implementation of safeguards to protect the integrity and independence of the valuation process. The RICS Global Red Book provides extensive guidance on conflict of interest management and professional conduct.
Additional Safeguards:
- Independent Oversight: An independent oversight body should be established to monitor the conduct of valuers throughout the resolution process. This body could be tasked with reviewing conflicts of interest and ensuring that valuers adhere to the highest standards of professional integrity.
- Peer Review Mechanism: RICS recommends that a peer review mechanism be included as a safeguard to ensure that valuations are subject to independent scrutiny. This process can identify any biases or conflicts that may not be evident at the outset.
- Mandatory Disclosures: We suggest that the EBA include mandatory, ongoing disclosure requirements for valuers regarding any changes in circumstances that might affect their independence or objectivity during the resolution process.
These additional safeguards will help further mitigate the risks of conflict of interest and enhance the transparency and reliability of the valuation process.
6. Do you have any other comments in relation to the draft Handbook and how it addresses the elements of independence as provided in the EBA RTS?
RICS appreciates the EBA’s focus on independence as a central theme in the handbook. We suggest further alignment with internationally recognized valuation standards, such as the RICS Global Red Book and the International Valuation Standards (IVS), which provide comprehensive guidance on maintaining independence, transparency, and consistency in valuations.
Additional Comments:
- International Standards Alignment: We recommend that the handbook explicitly references the use of international standards, such as those established by RICS, to ensure that valuations carried out for resolution purposes are consistent with best practices globally.
- Training and Development: We also suggest that the EBA encourage continuous professional development (CPD) for valuers involved in resolution, ensuring that they remain up-to-date with the latest methodologies, regulatory requirements, and market conditions.
RICS remains committed to supporting the EBA in refining this handbook and is available to provide further input to ensure that the final version reflects the highest standards of professional valuation practice.