Overall we believe that the current proposal is too restrictive and may have the effect of discouraging the best valuers to undertake valuations of the assets and liabilities of institutions under resolution.
Introducing a general criteria to assessing independence might exclude professionals which are not necessarily in a situation of conflict of interest, e.g. when a valuer might have had carried out a single minor appointment to the bank. Exclusions should be fair and based on a system which requires valuers to have clear policy guidelines on how to manage conflicts of interests.
Valuers should at all time be aware and assess whether or not there is a potential conflicts of interests. Valuers should demonstrate that conflicts are avoided and managed when instructed and appointed.
RICS is willing to cooperate with the EBA and provide examples of how our registered valuers manage conflicts of interests.
As a basic condition, we consider that an independent valuer should:
1. Possess the necessary qualifications and
2. Be sufficiently regulated
1. For RICS, a valuer is appropriately qualified to accept responsibility for a valuation when satisfying following criteria:
• appropriate academic/professional qualification, demonstrating technical competence;
• membership of a professional body, demonstrating a commitment to ethical standards;
• sufficient knowledge of the asset type and its particular market.
• compliance with any country or state legal regulation governing the right to practice valuation.
2. The valuer should be sufficiently regulated to ensure that the highest level of professional, ethical and business standards are met and maintained. This can be achieved either by statutory regulation or self-regulation. RICS has developed a regulatory monitoring system – Valuer Registration – to provide quality assurance and ensure the consistent application of the International Valuation Standards (IVS) and best practice professional guidance (RICS Red Book).
The importance of a valuer’s professional qualification and regulation has already been acknowledged by the property investment sector. The recently updated member guidelines of the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) state the following:
“The external valuer must have the appropriate professional qualifications and competence to perform the property valuation. The external valuer should have a local and/or international professional appraisal accreditation, and should be authorised or regulated to undertake valuations in the country concerned for the intended purpose. […] It is also important that the valuer is regulated by the local and/or international professional appraisal accreditation, for example through RICS valuer registration.”
RICS advises the banking sector to adopt the same approach and recommends the EBA to take over the above as appropriate.
Finally, we would like to draw your attention to the EU Directive 2014/17/EC regulating residential mortgage credit agreements, published in the Official Journal of the European Union on 28 February 2014. For consistency purposes, any references to standards, qualification and regulation in terms of valuation should take into account article 19 and recital 26 of this Directive which requires EU Member States to:
• develop valuation standards, and advised to do this on the basis of existing international ones such as IVS, RICS and TEGoVA;
• ensure valuers are professionally competent and sufficiently independent;
• comply with these requirements through statutory or self-regulation.
The full text of article 19 and recital 26 can be found in Annex I.
We believe that three years is too long period of time and would restrict the participation of the big valuer firms which regularly conduct businesses with banks. In small markets, it is standard practice that valuers and valuation firms often cooperate with banking institutions either as associates in carrying out valuation reports for mortgage lending purposes, or as customers (depositors/lenders). Therefore, it is unavoidable that valuer would have had frequent appointments with banks and therefore they shouldn’t be excluded.
As measure to deal with these cases, we would recommend a stricter monitoring of these valuers (e.g. through RICS Valuer Registration) and a requirement to demonstrate that valuers or valuation firms have a clear policy stating the independence, objectivity, conflict of interest and disclosure of the valuation process. RICS believes that assessing how valuers manage conflicts is more important that setting an artificial date of three years. We would however recommend a one year period as the appropriate period of time for the purpose of Article 4(5).
A number of terms require further clarification to better explain what is included in ‘offered any services’ or ‘had business or other relationship with the bank’. For example whether holding an account with the bank would qualify as a ‘business relationship’ or carrying out a small number of valuations for mortgage lending purposes would be deemed as ‘offering services’.
Bank resolution and recovery should be carried out swiftly so that confidence in the failing institution is not damaged or lost. Preventing the temporary administrator the possibility to carry out valuation might delay the process of resolution, therefore we would advise a more flexible approach whereby administrators could be allowed if circumstances necessitate an immediate opinion on value. However, we recognise that this depends on the individual circumstances and thus it is very difficult to set out clear criteria covering all situations. Nonetheless, we agree that the temporary administrator should fulfil the criteria set forth in the draft Regulation for the independency of valuer.
We consider that independence should be ruled out if a valuer is not a member of and regulated by a professional body which has a clear policy of managing conflicts of interest.