Consultation response rics.org

Transcription

1 RICS Regulation of Firms Consultation response

2 RICS firm regulation 2 RICS Regulation of Firms

3 Contents 1.0 Introduction The consultation process Executive summary Consultation questions, feedback and proposals Next steps...11 Consultation response November

4 RICS firm regulation 1.0 Introduction The professional services firms that RICS regulates - their systems, controls, culture and leadership are crucial to the delivery of surveying services to our standards in the market. By regulating firms, RICS can provide assurance to clients of surveying services and employers within the sector that they are dealing with service providers / professionals that embrace our professional, technical and ethical standards of practice and work in the best interests of their clients while appropriately upholding the wider public interest. After 10 years of regulating firms who provide surveying services, the Regulatory Board felt it was time to review our Firm Regulation framework to ensure it was still fit for purpose and met the expectations of the public and the profession. In early 2018 we consulted on several key changes to our Firm Regulation model. This policy statement sets our response to the feedback we received and puts forward our position on the changes we now intend to make. Who does this affect? The proposals in this paper apply to RICS Regulated Firms and members working within firms regulated by RICS. It will also be of interest to RICS members considering registration with RICS for regulation, consumers of surveying services and other regulators. Background to the consultation The Regulatory Board are considering two substantive changes to our regulatory policy. These changes are in relation to: the minimum eligibility thresholds in respect of qualified RICS principals in a registered firm; and the introduction of the role of Responsible Principal to support a strong compliance culture within regulated firms. The main objective of the consultation was to obtain market feedback at a global scale on the impact of the proposals and to inform the Regulatory Board s final policy decision on the minimum threshold of qualified principals, and the introduction of a Responsible Principal and Directing Principal definition. We asked the following questions: 1. Should RICS increase the minimum threshold of principals within a regulated firm from one RICSqualified individual to 25% of principals involved in surveying services? (Y/N). If not, should it be higher or lower? (higher/lower) 2. Should RICS require at least one of the Directing Principals within an RICS-regulated firm to be a qualified RICS member? (Y/N). 3. Do you have any comments on the proposed definition of Directing Principal in section 3? 4. When you consider the proposed changes relating to the proportion of RICS qualified principals in a regulated firm overall, what level of burden (including the cost) do you believe this would have on your firm? 5. Do you agree that RICS should take steps to bring global consistency with the model of mandatory registration for those firms with more than 50% RICS qualified principals? (Y/N). If not, why? 6. Would your firm be subject to mandatory regulation under these proposals? (i.e. are you a sole practitioner or does your firm have at least 50% RICS-qualified principals? (Y/N). 7. Do you agree with the list of envisaged responsibilities of the Responsible Principal? (Y/N) If not, which responsibility is too onerous, or alternatively should the responsibilities be extended? 8. What training and support would you expect RICS to provide in order to support your firm in successfully introducing the role of Responsible Principal? 9. Should the proposed Responsible Principal be an RICS member? (Y/N) 10. Should RICS require an Assistant Responsible Person in each office of a regulated firm in order to ensure day to day supervision and compliance? (Y/N). 11. When you consider the proposed changes relating to Responsible Principal and Assistant Responsible Person, as envisaged in this paper, what level of burden (including the cost) do you believe this would have on your firm and the quality of surveying services you deliver to clients or the public? 12. Do you have any other comments about our approach to the registration or regulation of firms? 13. How do you think we can best promote RICS regulated firm status to clients and the public? 4 RICS Regulation of Firms

5 2.0 The consultation process An open public consultation was launched on 26 February 2018 and ran until 20 April 2018 on the iconsult platform. At the start of the consultation we wrote to all Registered firms in an electronic communication to ensure they were informed and consulted about the proposed changes. Throughout the consultation we engaged globally with a wide range of stakeholders across the land, built environment and property disciplines. The Stakeholders we engaged with included RICS firms and members, government bodies, industry groups and consumers of surveying services such as insurers, consumer groups and banks. The proposals were discussed, and feedback was given at several meetings with RICS firms, industry groups, roundtables and events across the UK and the rest of the world. RICS received a significant amount of engagement on the policy proposals through these meetings. The views expressed in these engagements have been recorded and considered as part of the consultation. A total of 132 formal responses were received on iconsult from RICS regulated firms, RICS members and end users. A good range of responses were received across all regions, disciplines, end users and firms. The consultation document can be found here and should be viewed alongside this document. Consultation response November

6 RICS firm regulation 3.0 Executive summary Those that responded to the consultation were broadly in support of the proposals to improve our Firm Regulation model. Many respondents welcomed the proposed changes, considering they would lead to increased professionalism and compliance with RICS standards. A high-level summary of the views expressed is provided below: Large multinational firms, SMEs and sole practitioners considered it was critical operational impact was managed, and clear guidance provided, to ensure administrative burden was minimised Further clarification and flexibility on the definition of Directing Principal and Principal was considered necessary Some large multidisciplinary firms considered more thought was needed on who the Responsible Principal should be, on the basis an Executive Director or Compliance Director is not always an RICS member in large organisations, or best placed to take on this responsibility A number of firms considered there should be discretion and flexibility in the minimum qualified principal threshold to allow firms to be registered who do not meet the threshold. It was considered that it is in the public interest to allow those who want to be regulated to be regulated, and by doing so standards of professionalism would increase overall Further, in regions where there is not a critical mass of members, or the ability to create new members (through university accreditation), meeting the 25% threshold is likely to prove challenging In considering the extension of mandatory registration for firms with more than 50% RICS Principals to markets outside of the UK, a number of respondents expressed concern about increased burden on sole traders in developing markets. It was felt that sole traders may be competitively disadvantaged in markets where the RICS brand has less presence. Wider feedback during the consultation process has suggested that any roll out of the mandatory model should be approached with caution to ensure market readiness; and Respondents also considered appropriate training, guidance and other online content would be needed to support firms to implement these changes. Following an impact assessment and consideration of the consultation feedback received, we have made several changes to the policy proposals to ensure that they are implemented in a manner which allows sufficient flexibility to minimise administrative and operational burden on firms and strengthens the value proposition of firm regulation. A detailed summary of the consultation feedback we received, and the final policy position agreed by the Regulatory Board is set out below. 6 RICS Regulation of Firms

7 4.0 Consultation questions, feedback and proposals Minimum threshold of qualified principals Consultation proposals and responses received In the consultation we proposed requiring that 25% of a firm s principals, who are responsible for surveying services, are RICS qualified (MRICS, FRICS or AssocRICS). We consulted on the proposal to quantify the impact of increasing the minimum threshold. The majority of respondents and stakeholders we engaged with across all markets and disciplines were supportive of increasing the minimum threshold and considered the proposal would meet our policy objective, to achieve greater confidence in surveying services offered, without imposing undue burden on firms. 78 respondents did not provide comment on the appropriateness of 25% as the minimum threshold. Of those who did comment, a high proportion of respondents in the UK stated that the minimum threshold should be higher than 25% noting that the minimum threshold should be higher than 50%. Commenting on the level of burden, including cost, the majority of respondents considered that introducing an increased threshold of 25% RICS Principals would have little or no impact. In commenting on this proposal, several respondents noted that the current definition of Principal, as set out in the Firm Registration Rules, focuses on title as opposed to actual responsibilities within a firm. In some markets it was raised that a Senior Manager may be mid-level or even low level. Respondents also raised concern about how the 25% threshold would be tracked by RICS throughout the year, as in some firms the number of principals may periodically change throughout the year. In addition, several respondents raised concerns about the impact of increasing the minimum threshold in multidisciplinary firms where it might not be possible to meet a 25% threshold. One respondent from outside of the UK commented that it would be difficult to meet the proposed threshold in markets where there are considerably lower numbers of RICS members. Concern was also raised about the cost of recruiting new principals due to wages rising in remote areas where there are few qualified principals available. Our policy position Having considered the views expressed in the consultation, we have decided to increase the minimum threshold of qualified principals from 1 to 25%, as set out in our consultation. We will reserve the right to register a firm who does not meet the threshold in certain circumstances but has an appropriate level of supervision within its structure. When a firm applies for registration and does not, at that time, meet the minimum threshold for registration, we will normally place a condition on its registration, requiring the firm to take steps to meet the requirements within a specified period. We will then review progress of that firm in meeting our requirements within the agreed timeline. At the conclusion of the specified period, if the firm still does not meet our requirements we will determine whether to extend the period, or, we may deregister the firm. In response to the comments we received about the current definition of principal in the Rules for the Registration of Firms, we have decided to review the definition, and supporting guidance, to ensure sufficient clarity regarding what is a principal. We recognise this clarity will become more important given the introduction of the 25% minimum threshold, and the introduction of requirements to have an RICS qualified directing principal (see below). In addition, we will require that firms notify us if there is a material change in the proportion of qualified principals, which causes the number to fall below the 25% threshold. In these cases, we may deregister the firm (usually if we consider the firm is not taking reasonable steps to meet the 25% threshold), but where the firm has presented a credible plan to rebalance the eligibility threshold, then we may agree a specified transitional period. Responding to concerns about the administrative burden arising from the need to notify RICS of any changes, we intend to adopt a proportionate approach, and will provide guidance to firms on notifying RICS alongside changes to our Rules. Consultation response November

8 RICS firm regulation Directing Principal Consultation proposals and responses received We consulted on a proposal to require, as a mandatory criterion for registration, that a firm have at least one MRICS, FRICS or AssocRICS member, who meets the definition we proposed for Directing Principal. It was noted by respondents from large multinational and multidisciplinary firms (often providing surveying and nonsurveying services), that their executive boards did not always include a RICS member, and therefore they would not meet this proposed requirement of registration albeit there may still be many RICS members working for the organisation, including some at very senior level. It was suggested that it would be counter to the public interest if RICS could not register such firms for this reason and detriment to RICS members working for the firm. In these circumstances, it was felt this requirement should be restricted to the senior management structures within the surveying services the firm carried out. Several respondents indicated that a Directing Principal should not be an AssocRICS. One respondent justified this assertion by stating that an AssocRICS qualification is a stepping stone to MRICS qualification. We also received a submission that the proposal does not address the governance structure of regulated firms within the public sector. It was suggested, that RICS should differentiate between public sector regulated entities and private sector firms. The basis being that public sector regulated entities have strong governance, public transparency, and ethical and professional standards already embedded. A number of respondents agreed that the introduction of a Directing Principal was a positive step forward in the evolution of RICS regulatory framework. They agreed that it would be a useful tool in ensuring RICS standards had the appropriate level of permeability and compliance within a firm. Our policy position During the consultation submissions suggested that the role and responsibilities of the directing principal overlap with the responsibilities of the Responsible Principal role and could create duplication. Responding to this feedback, we have decided to require the nomination of a Responsible Principal and that the Responsible Principal should also be a directing principal, (or an explicitly authorised individual that reports to a directing principal of the firm). Our policy position for the Responsible Principal is outlined on the next page of this document. Responsible Principal Consultation proposals and responses received In the consultation it was proposed that a Responsible Principal would be introduced who would have primary responsibility for ensuring that RICS professional, technical and ethical standards are applied, upheld and supported by an appropriate assurance framework within a registered firm and for ensuring corporate co-operation with our regulatory processes (such as monitoring, investigations and disciplinary processes). We consulted on the proposals to understand the impact of the introduction of a Responsible Principal and receptiveness of the profession to taking on this role. Almost all of those who responded to the consultation, and the stakeholders we spoke to during the consultation, supported the policy intent of introducing a Responsible Principal into our regulatory framework, and the envisaged responsibilities of the Responsible Principal. Firms considered that there would need to be clear guidance, training and flexibility on how firms should implement a Responsible Principal framework within their respective firms, to ensure minimum cost and administrative burden. In considering the envisaged list of responsibilities set out in the consultation, several respondents raised concern about the Responsible Principal being responsible for promoting appropriate pastoral, health and wellbeing values. These respondents felt that this over extended the role of RICS, into business considerations, which should be left to the discretion of employers and employees. A small number of respondents expressed concern, that the Responsible Principal would be required to whistle-blow on their employer, by reporting material non-compliance. It was suggested that this could compromise the principal s employment at the firm and their working relationships with colleagues. The majority of respondents formally agreed with our proposal that the Responsible Principal would be an RICS member. It was flagged that in some large and multidisciplinary practice firms, a Responsible Principal who met the proposed definition of Directing Principal would not be employed within the executive management (at Board level). In addition, it was noted that in some firm structures, the position of Responsible Principal would be more effectively carried out by the compliance or legal director (usually a lawyer or accountant and not a MRICS, FRICS or AssocRICS). It was noted that in some jurisdictions, these employees often hold other key compliance positions which are enshrined in statute for example the Money Laundering Reporting Officer or Data Protection Officer. Firms reported that these employees are already 8 RICS Regulation of Firms

9 responsible and accountable for ensuring compliance with RICS standards and regulatory framework because of their specialist skills and expertise in compliance. Therefore, it would make sense and minimise administrative cost and burden on firms if they could be the Responsible Principal. While the aims of the proposal were generally supported, some issues were raised with mandating an assistant Responsible Principal in each office. For example, where there are a lot of small offices, it may not be practicable to have an assistant Responsible Principal in each office, or where there are several remote staff or sole practitioners. Further, several small-medium enterprises (SMEs) and larger firms indicated their structures had centralised functions, which would not easily or effectively accommodate an appropriately qualified Assistant Responsible Principal in each office. Several respondents felt that the firm and Responsible Principal should have discretion to decide which supporting staff structures were required to best discharge their duties. It was noted by one respondent, that introducing an arbitrary number of assistant Responsible Principals could be counterproductive to the aims of the policy and dilute the responsibility of the Responsible Principal. A considerable number of respondents felt requiring an assistant Responsible Principal in each office, would introduce a disproportionate level of bureaucracy and administrative cost to firms. Appropriate guidance and training was considered fundamental to minimising the administrative cost and burden of the proposals. The majority of respondents considered online guidance and elearning content was the most appropriate method of delivery. Our policy position Having considered the consultation responses, we have decided to implement the Responsible Principal proposals; with some amendments, which we hope will minimise the impact on the profession, while maintaining the effectiveness of the changes. We intend to amend the Firm Registration Rules to require a firm, upon registration and on an ongoing basis thereafter, to nominate a Responsible Principal who will be responsible and accountable to RICS for: taking reasonable steps to ensure the firm has implemented policies, systems and controls to ensure compliance with all RICS standards and other requirements of RICS registration by the regulated firm, its managers and employees, and be able to demonstrate evidence of this to RICS if required to do so; taking reasonable steps to ensure the firm has implemented systems and controls to ensure compliance with legal/statutory obligations and be able to demonstrate evidence of this to RICS if required to do so; ensuring all information provided to RICS is truthful and adequate for the required purpose and that any material change in circumstances are reported to RICS in accordance with the Rules for the Registration of firms; ensuring processes and systems are in place to record any failure to comply with RICS requirements or statutory obligations and make such records available to RICS if required; and demonstrating that there is an effective system in place to report any material failure to RICS as soon as reasonably practical. The firm will be responsible for nominating its Responsible Principal, however, if the individual nominated, does not meet our requirements we will reserve the right to refuse the nomination. Following the feedback received in the consultation, we consider more evidence is needed to determine the extent to which a Responsible Principal can or should be held to account for promoting pastoral and wellbeing support. Therefore, we have chosen not to extend the policy on this occasion into this area. That said we will be considering this idea further by engaging with firms, and other key stakeholder and may look to amend the policy in the future. Responding to concerns about professionals being individually accountable for whistle blowing on their firm, we have made some changes to limit accountability to demonstrating that there is an effective system in place to report any material failures to RICS as soon as practical. The responsibility will be on the firm to demonstrate to RICS that it has governance systems, and compliance controls, in place to ensure the firm can meet our requirements, and the Responsible Principal can fully carry out the responsibilities of the role. We will explain, in guidance accompanying the revised rules, the factors we will consider when deciding to approve a Responsible Principal nomination. Having considered the range of views during consultation, we have decided that the Responsible Principal will normally be a qualified RICS member. Where this is not possible, we propose to allow firms to nominate a principal of the firm who does not meet one or more of these requirements for approval as the Responsible Principal. We will also work with firms that do not meet the requirements to bring them into compliance. Recognising certain comments made in the consultation, we have decided not to require an assistant Responsible Principal in each office. Instead we will leave it up to the Responsible Principal, and the firm, to decide what structures are needed to ensure there is appropriate governance and controls in place to carry out the duties of the Responsible Principal. Where there is more than one office, we will require the Responsible Principal to report and explain to us, if required, on the systems and controls in place to ensure he or she can perform the required duties. Consultation response November

10 RICS firm regulation To support the profession effectively with implementation, we will produce guidance and training for firms to assist them with these new requirements. Global consistency mandatory registration for firms with more than 50% RICS qualified principals Before firm regulation is made mandatory in a market outside the UK, there will be a transitional period, during which time we will be providing training and support to those firms which will be affected. This is to ensure they understand our requirements for registration and the operational burden is minimised. Consultation proposal and responses received In the UK, firms who have more than 50% of principals who are MRICS, FRICS or AssocRICS must be registered for regulation by RICS. Outside of the UK, firms are not required to register for regulation and do so on a voluntary basis. In the consultation we proposed extending the mandatory model outside of the UK into other markets, on a country by country basis, over the next 5 years, to bring global consistency to our regulatory model. Of those who responded formally to the consultation, the majority supported the proposal to extend mandatory registration into markets outside of the UK. They agreed with the proposition that there should be consistency in our global regulatory framework. Some respondents expressed concern that there would be increased burden on sole traders in developing markets, who may be competitively disadvantaged in markets where the RICS brand has less presence. Our policy position Having considered the views expressed in the consultation, we have decided to roll out the introduction of mandatory registration for firms who have more than 50% of principals that are MRICS, FRICS or AssocRICS, beyond the UK. Our aim will be to roll this out by early 2021 to all markets where we are satisfied it is practical to do so based on an assessment of market readiness. We recognise the increased burden this could create for the profession (particularly sole practitioners and small firms) in markets where the RICS brand has less prevalence. Therefore, we intend to undertake detailed analysis on the readiness of markets to adopt the proposed policy. Factors we will consider in determining market readiness for the introduction of a mandatory firm registration model would include: Market and public recognition of RICS; Transparency and the rule of law in the country; Readiness of the profession to comply with mandatory registration; and The ability for RICS to enforce mandatory registration on firms within the legal jurisdiction, for example if the state already regulated this area. 10 RICS Regulation of Firms

11 5.0 Next steps Following the publication of this policy paper, we will begin drafting the required rule changes to our Firm Registration Rules to bring the policy changes into effect. It is likely the rule changes will be made in the first quarter of We anticipate that the profession will come into full compliance with the rule changes following the expiry of a one-year transitional period in the first quarter of We will produce detailed guidance and training for firms, which we intend to publish with the rule changes. During the transitional period we will work with firms to assist them to understand and meet our new requirements. Consultation response November

12 Confidence through professional standards RICS promotes and enforces the highest professional qualifications and standards in the valuation, development and management of land, real estate, construction and infrastructure. Our name promises the consistent delivery of standards bringing confidence to markets and effecting positive change in the built and natural environments. Americas Latin America North America Asia Pacific Australasia Greater China (Shanghai) South Asia Greater China (Hong Kong) Japan Southeast Asia EMEA Africa Ireland Europe Middle East United Kingdom RICS HQ NOV2018/DML/23271/GLOBAL