Gatekeeping Professionalism in Valuation: A Regulatory Review Experience

Gatekeeping Professionalism in Valuation: A Regulatory Review Experience

Kenneth Ma

As a registered valuer and the director of Moore Transaction Services Limited, my work has recently undergone a valuation review by the Royal Institution of Chartered Surveyors (RICS). This proactive measure is aimed at assuring the public, consumers, the profession, and stakeholders of our unwavering dedication to maintaining professional conduct and high levels of expertise.

The Royal Institution of Chartered Surveyors (RICS) is a global leading professional body that promotes and enforces the highest professional qualifications and standards in the development and management of land, real estate, construction and infrastructure. It is also responsible for establishing valuation standards for these assets, as well as for business interests.

The regulatory review process serves as a mechanism through which RICS evaluates the extent to which a firm and/or its members adhere to RICS' regulatory requisites. RICS offers the necessary support and guidance to enhance compliance. The guidelines for the review process are outlined in RICS' Rules of Conduct, accompanying standards, and information papers. This process constitutes a significant facet of the RICS Valuer Registration Scheme and reflects RICS' dedication to fostering ethical and professional benchmarks within the industry.


Photo 1. Guest Lecturer, the EMBA Programme of the City University Of Hong Kong, 7 December 2022.
I explained to students the valuation requirements of the Listing Rules and Accounting Standards concerning IPOs and M&As in Hong Kong. I also shared my experience in answering valuation-related queries from the HKEX and Nasdaq about notifiable & connected transactions and De-SPAC transactions.

During the review, I was required to provide a selection of my valuation files for off-site assessment by a member of the RICS Regulation Profession Support and Assurance Team. This process encompasses the review of a subset of valuation files to ensure that the practices related to valuation activities are appropriate. It comprises an initial review discussion, file evaluation, and a concluding meeting to deliberate on the discoveries and recommendations. The primary objective of the review is to guarantee that valuations are conducted in accordance with RICS Valuation – Global Standards (also known as the "Red Book") and to offer advice and assistance to enhance the valuer's control methods.

Within the review process, the RICS selects a subset of files from the valuer's list of valuation instructions. Subsequently, the valuer is required to upload these files to a secure data room for the reviewer to assess. The file evaluation encompasses an assessment of prior involvement and conflict of interest checks, engagement terms, site inspection notes, records of any desktop inquiries and investigations, documents from external parties, client-provided information, file notes regarding relied-upon comparable evidence, notes on the valuation calculation, rationale for inputs in the valuation, and the valuation report. Not only does the regulatory review process transcend the identification of non-compliance areas, but it also aims to pinpoint instances of exemplary practices that can be shared within the broader professional community. The process is designed to be supportive and beneficial to valuers, and improve their adherence to the Red Book. Consequently, it fosters the cultivation of a heightened level of professionalism among valuers - a critical factor in nurturing trust and confidence in the valuation industry.

The review process was incredibly enlightening in terms of identifying areas where I could refine my valuation practices. Subsequent to the review, I undertook measures to ensure full compliance with the RICS Rules and Standards, which helped to lower my professional risk exposure and that of my firm. The review also helped us identify areas where our firm-wide valuation practices could be enhanced to align with RICS regulations. I believe that being registered with RICS demonstrates a commitment to promoting ethical and professional standards, setting us apart from non-registered counterparts.

After the review, I received a report detailing the findings and recommendations from the review period. Beyond the performance grade, the feedback I obtained from the RICS was invaluable, providing a clearer understanding of the standards expected of both me and my firm. The review process shed light on areas where I could enhance my compliance with RICS regulations, such as ensuring comprehensive inclusion of pertinent documentation in the valuation files and accurate reflection of my valuation methodology and reasoning within my file notes. The feedback was constructive and empowered me to make refinements to my valuation practices. It serves as a valuable experience that fosters compliance with RICS Rules and Standards, diminishes exposure to professional risks, and sustains trust and confidence in the valuation industry.


Photo 2. Guest Lecturer, the MSc Corporate Governance and Compliance Programme of Hong Kong Baptist University, 11 October 2022.
I explained to students the concerns of the SFC, HKEX and HKICPA over valuations, the basic knowledge of performing a business valuation, and the requirements of some commonly encountered Listing Rules and Accounting Standards concerning IPOs and M&As in Hong Kong. I also talked about how to perform valuations for new economies.

In summary, my encounter with the RICS regulatory review process was undeniably positive. I strongly encourage all valuers to actively participate in this regulatory review process when being selected, seizing the opportunity to learn and enhance their practices. It is particularly important in light of the many valuation pitfalls that have been identified by the Securities and Futures Commission and Hong Kong Exchange and Clearing Limited in recent years. I extend my gratitude to RICS for their continuous support and guidance throughout the review process, and I eagerly anticipate upholding the highest standards of professionalism within the valuation industry.

Moore Transaction Services Limited, which is regulated by the RICS, is steadfastly committed to the promotion of ethical and professional standards. We remain dedicated to ensuring that our clients receive accurate, dependable valuations that align with the Red Book. We firmly believe that the regulatory review process constitutes a pivotal aspect of our commitment to delivering top-notch valuation services to our clients. We will persist in our close collaboration with RICS Regulation to guarantee alignment with the latest standards and regulations.