RICS Regulation of Firms Consultation

Proposals in Detail

Below we set out, in detail, the specific areas of change that we envisage. This is followed by a number of questions on which we would like your views.

Minimum threshold of qualified principals

Having strong and clear commitment to the standards, values and competencies of the profession embodied in the individuals who lead the business is very important to delivering the standards we, the profession and public expect.

Current position

At present, a firm may register for regulation if a single principal is an RICS qualified member. A principal is currently defined under RICS rules to be:

  1. a sole practitioner, or
  2. a partner, a director or a member of a limited liability partnership, or
  3. a person whose job title includes the word "partner" or "Director", or
  4. a person who performs the function of a sole practitioner, a partner, director or member of a limited liability partnership, or equivalent.

The wide scope of this definition means that registered principals (for RICS purposes) encompass both the leading/directing executives of firms and, in many firms, the wider senior management group.

Proposed change:

We are concerned that as the RICS profession and brand grows, having a single RICS qualified principal does not provide sufficient assurance that RICS professional standards have adequate influence within the senior management of all firms. In order to address these concerns, we propose the following changes:

  • Require, as a mandatory criterion for registration, that the firm must have at least one RICS qualified officer who is a Directing Principal.
  • Define "Directing Principal" within the Rules for the Registration of Firms as being those principals who lead a firm (normally sitting on the board or executive team and making the leading contribution to strategy and other leadership decisions).
  • Require that 25% of a firm's principals (who are responsible for surveying services - see definition in appendix) must be RICS-qualified (MRICS, FRICS or AssocRICS).
  • Where we administer a number of regulated firms as a group, these requirements would apply to each registered entity in the group
  • Outside the UK, where the scope of the registration applies to only a specified surveying service (such as valuation), the 25% would be based on the total number of principals involved in that service
  • Our intention is that we would allow a transitional period (probably 2 years) to bring in the change and work closely with those firms to support them in meeting the new requirement, from the point of introducing the rule change
  • In the UK, we propose to retain the requirement that a surveying services firm must register for regulation if the firm or legal entity within a firm is run by RICS-qualified principals (by which we mean 50% or more of the principals are associates, professional members or fellows of RICS). We propose to extend the mandatory model (currently only mandatory in the UK) to other markets, on a country by country basis, over the next five years.. This is to bring as much global consistency as possible to our regulatory framework. Factors we would 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
    • The ability for RICS to enforce mandatory registration on firms within the legal jurisdiction

The current proposed changes are summarised graphically below to assist understanding:

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We believe that these changes will give clients confidence that, in using a regulated firm, they are procuring surveying services from a firm where a significant proportion of the senior managers have been assessed for competence and ethical awareness under RICS' world class professional assessment programme. Our initial impact assessment indicated that only a small number of existing firms would be affected by this change, however we consider that it is important to set strong foundations of future growth in the number of regulated firms globally.

Responsibility of principals

We recognise that there is increasing public expectation in many countries that transparent and proper corporate governance requires that the appropriate business leaders should be held to account for personal or 'corporate' failures of professional conduct, performance or service. We are therefore considering measures to ensure that senior leaders and decision makers of RICS regulated firms are more clearly accountable for their firm's compliance with RICS' standards.

Current position

At present a regulated firm nominates a Contact Officer who provides information to RICS. The Contact Officer can be anyone within an organisation, and not necessarily an RICS-qualified individual. The responsibilities of this individual are limited to being the main liaison point between the firm and RICS and he or she is the person authorised by the firm to submit the firm's regulatory annual return to RICS. The focus of this arrangement is largely administrative and designed to support timely cooperation with RICS and as such the Contact Officer does not hold any accountability for ensuring that standards are met.

Proposed change

We propose to introduce the position of "Responsible Principal", in addition to the existing role of Contact Officer. A Responsible Principal will 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). Our expectation is that the Responsible Principal would normally be an RICS member Directing Principal within the firm.

This would align RICS firms' regulatory regime more closely with other professions with established practice / firm based regulation, such as auditors, pharmacists or solicitors.

We envisage that the "Responsible Principal" would be expected to:

  • take reasonable steps to ensure the firm has implemented policies, systems and controls to ensure compliance with all RICS standards (The RICS Rules of Conduct and any RICS Professional Statements)  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;
  • take 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
  • ensure that 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;
  • ensure processes and systems are in place to record of any failure to comply with RICS requirements or statutory obligations and make such records available to RICS;
  • report any material failure to RICS as soon as reasonably practical.

We also believe that a responsible principal would be an empowered conduit between RICS and the firm to support a good corporate culture going beyond baseline compliance, encouraging strong professional values, for example, by promoting:

  • appropriate pastoral, health and wellbeing support mechanisms are in place for colleagues;
  • appropriate procedures / policies in the practice to ensure that the firm's work environment, values and culture support corporate social responsibility inclusivity, diversity and equality.

The Responsible Principal would act as the focus of RICS compliance within the firm. Under normal circumstances we would envisage this person as being the main point of engagement with RICS in relation to consultation on new standards and compliance issues, albeit that the day to day contact on administrative matters would be operated via the contact officer.

Ultimately, in the small number of cases where RICS has justifiable and evidenced regulatory concerns, we would form a view on whether the Responsible Principal had taken reasonable steps to meet their responsibilities. This would be in addition to potential disciplinary action against the regulated firm itself as an entity, and any other individual RICS members implicated in the matter of concern.

Alongside defining the responsibilities (above) we are also considering a range of matters relating to the effective implementation of a such a regime:

  • We envisage that firms would need to decide how a Responsible Principal would fit within their business / corporate structure. This would involve making sure that systems needed to enable the firm to deliver RICS requirements are in place.
  • It would be up to the management of the firm to appoint a Responsible Principal who is competent and able to undertake the role and to review the effectiveness of its Responsible Principal regularly.
  • RICS would reserve the right to refuse the firm's nominated Responsible Principal, if in its view that individual was not fit and proper.
  • In larger firms, we envisage that the Responsible Principal would need to have clear reporting lines that would empower them sufficiently to fulfil their roles and be able to implement changes or introduce new procedures to ensure compliance.
  • We recognise that larger firms are likely already to have a dedicated compliance director who may not be a member of RICS. In such cases the firm would still need to appoint a Responsible (member) Principal, even though much of the implementation work relating to standards may, in practice, be led and delivered by others.
  • We recognise that some firms offer surveying services from multiple-offices. We are considering adding a requirement for such practices that each "office" from where surveying services are provided to appoint an Assistant Responsible Person in each office to provide on-site supervision and ensure day-to-day compliance with RICS requirements and legal / statutory obligations. We currently consider that the responsibilities of such a role would align with, but not replace, the responsibilities of the Responsible Principal suggested above.
  • A substantial proportion of RICS regulated firms are either sole practitioners or sole-principal micro-businesses. In such cases it is highly likely that systems and controls relating to quality and risk management will be much simpler than those of larger firms. In this context our approach aims to ensure that these processes, albeit simple, appropriately achieve the outcomes we expect to see. Our aim is to avoid imposing a one-size-fits-all approach unless deemed absolutely necessary. In the smallest firms the Contact Officer and Responsible Principal would usually be combined.
  • For existing registered firms we will allow a transitional period from the introduction of new rules to establish their own procedures. We anticipate this would be approximately 6 months.

Impact

We envisage that these changes will involve a limited increase in administrative burden on firms as they will need to put in place the appropriate systems to select and then declare their responsible principal. Clearly individuals who are the nominated Responsible Principal or Assistant Responsible Person will assume additional, personal accountability, however as there is no imposed change in the actual practice rules, we do not believe there is any material difference to what a well-managed firm should be doing anyway. We do recognize that the creation of these roles is likely to result in more specific training requirements for the individuals nominated.