We believe that the approach taken by the RTS is inappropriate because:
a) It leaves the judgment of whether or not a valuer is independent in the hands of the valuer himself , without there being any external or corporate control whatsoever. Thus, the valuer is the one that must decide:
- Whether or not many of the potential common or conflicting interests exist. The RTS only identifies the cases included under art. 4.5 and 4.7 as being conflicts of interest.

- Whether or not said potential interests are material, that is to say, whether or not they can influence the valuer’s judgment.

The Draft’s main grounds for adopting this approach is that it is difficult to create a list of interests because it would always be incomplete and out of date, or because it would just identify general criteria that are not really usefull.
Even if the mentioned difficulty exists, the solution adopted still seems unsuitable to us because:
i) In addition to the case under art. 4.5, it is possible to clearly identify many more items from that list. So, just as an example (being that many more cases could be given), it is obvious that there are common or conflicting interests for a valuer if he:

o Is a shareholder or creditor of the institution in resolution (or of other companies in its group)
o Is a co-owner of assets (in particular non-listed assets) that are owned by said institutions or companies
o Has received a loan from said institution.
o Is a partner or direct relative of one of the members of the board of directors or of the top executives of said institutions or companies.

ii) It is possible to give specific indications regarding when said common or conflicting interests may be material.

a. In the case of financial interests, materiality can be identified by establishing a specific threshold of the valuer’s annual revenue or equity.
b. In the case of personal interests, it can be identified by pointing to specific cases (parents, children, brothers, partners in non-listed companies, etc.).

iii) It is completely possible to establish external controls for said common or conflicting interests, either by making it mandatory to notify all such circumstances to the resolution authorities so that they may judge whether or not materiality exists, or by requiring that there be transparency with regard to said circumstances in the valuation report, so that it is the market that exercises the control, or by a combination of both methods.

The approach that we suggest is the one followed by Spanish legislation (see the annex with the relevant rules established under RD 775/1997, on appraisal companies) for identifying whether or not real estate valuers are independent for the real estate market and credit institutions. With regard to issuing independent reports, Spanish law considers that a conflict of interests exists if there is a situation that compromises the independence of the valuer (according to the criterion of the valuer himself). Furthermore, Spanish law gives a specific and precise list of some of such situations and it confers the control and inspection of such situations on its appointed supervisor (the Bank of Spain).
It can be argued that most professional codes of ethics (RICS or TEGoVA in the scope of the EU) do not contain a list or even any general criteria regarding this question.
That is true, but it is not reason enough to consider RTS’ approach as valid; it simply identifies a market failure because:
- the professional codes of ethics for valuers are rules that have, on one hand, been dictated by private companies that are only interested in dealing with private relations and not in dealing with matters that have regulatory significance vis-à-vis third parties.
- they try to resolve the problem by demanding that the valuer notify the client that commissioned the valuation informing them of the potential conflict of interest, and that the valuer obtain the client’s consent. Thus, another control does exist, aside from that of the valuer himself.
- in situations of bank resolution, private interests are not the only interests at risk; there are also a good many stakeholders (shareholders, creditors, the financial market itself, the supervisors of the institution and its competitors) whose interests must be protected. That is why EBA regulations are necessary.
b) The counterbalance adopted under article 2 (of requiring that the valuer hold expertise in all relevant aspects of the possible bank valuation and that he have sufficient resources to carry out his work) is:
- insufficient because it does not attribute any special perceptiveness or honesty to the valuer that would allow him to identify any common or conflicting interests, or to reject the commissioned work if such interests were material;
- not very realistic because it is practically impossible to find someone who holds expertise in all types of assets and, particularly, when it comes to real estate valuations (be they for bank property or property received by the bank as guarantee), where the position of expert is undertaken by specialized agents in contact with the local markets; something that, by definition, would be very difficult to encounter in one sole valuer, even in local banks. It must be noted that real estate valuations are, due to the absence of transparent markets, the most conflictive valuations that any valuer has to face.


Furthermore, requiring that the valuer have “expertise and resources” is something that is always necessary for any expert, whether they are independent or not; therefore, it cannot act as a counterbalance to the fact that there is no precise criteria to determine whether independence exists or not.

IN SUMMARY: We believe that

- In addition to establishing a general requirement that no material common or conflicting interests exist, the RTS should include more cases where said interests are identified and recognized as such, it should also contain general criteria to determine materiality.
- The decision regarding whether or not these conflicts exist and if they are or are not material must be subject to the control of a supervisor and/or public transparency.
- The requirements for capacity and independence must be applied to any expert that is going assess the assets and liabilities of a bank in resolution (particularly experts that assess non-listed assets such as real estate), because requiring that there be only one valuer is unsuitable and not very realistic.