The European experience of self-regulating

The European experience of self-regulating
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Head of one of the oldest British trade organizations speaks on the specific features of the self-regulation system in Europe.

Managing Director of RICS Europe, Russia & CIS Maarten Vermeulen answers the questions of

— Mr. Vermeulen, you are the Head of the Royal Institution of Chartered Surveyors in Europe, where you run the office. This is one of the oldest self-regulated organizations started in 1868. Therefore we would like to know the main principles of the organization - what are the main lines of activity, the main objectives?
— Well, the organization originally started one hundred and forty years ago, in the period of the Industrial Revolution in Great Britain, when one of the principal demands having arisen during this process of evolution was to overcome a lack of quality when it came to building, when it came to basic infrastructure. As a result of that, people said, “Hey, we have to do something about this to get the quality right”. It was then that an organization dealing with quality development standards was created. Besides this, it trained and checked its members. Of course, over time things have changed. Our RICS organization has changed simply because the market has changed and developed, and nowadays RICS is an organization with over 118,000 members worldwide. And the most important thing that we do is basically this: we try to set international standards.

— Your organization has been working here in Russia for 6 years. My question is: what are the main lines of activity here? How many members of your organization are there in Russia? How many companies, corporations – I think we can speak about RICS-regulated companies – are there in Russia?
— First of all, we’ve got over 400 members here in Russia and the CIS. Growing the membership during the crisis is not very easy, and as a result we’ve also said, “Let’s focus a little bit more on developing a training and educational center – a center of excellence”. It also ties in well with the Russian mentality, as Russians love to learn, and they need to be convinced, basically, that you’ve got the knowledge which is really needed for the development of the market. So now we actively work in this direction, having added educational function to certification. We hold good events there.

— Thank you. The next question will be very interesting for our readers. As we understand, self-regulation is a very important element of civic society and a significant concept in Western European countries. Therefore it is very important for us to understand how it works and what the principles of self-regulation are. In general, what is your point of view on this phenomenon?
— First of all, I may say that the picture is mixed: certain countries strive for self-regulation, others stick to state regulation. Basically, countries strive for self-regulation because they want to put the responsibility back on the markets. This is what’s happening now in the Netherlands, for example, and we have been involved in doing it over there, and also in other countries. And the most important thing is that we as an organization are well advanced in having self-regulation, we have local experience in this with many other companies or organizations.
And therefore we offer great benefit to governments simply because we are independent, we do not represent anybody else except for what we stand for — ethics in the market, that’s the most important thing. “We don’t represent companies, we don’t represent their members” – yes, we do!
But from a different perspective, and as a result we are a very convincing, very reliable and very trustworthy partner for governments to talk to about self-regulation. A good thing about this is an initiative from the markets and we really have a portfolio of instruments which we can use to punish people if they do not meet our requirements. And the most important one is, of course, that we publish details of those people who did not behave and, as a result, their reputation will be ruined. And it is an effective thing to do for the property sector to become better.

Maarten Vermeulen: “We are independent, we do not represent anybody else except for what we stand for — ethics in the market.”

— Speaking about self-regulation in construction, how is it established? What is happening now is that, on the one hand, there are certain elements of self-regulation in construction, but to a great extent this sector is government-regulated. Is there a possible way of co-existence between these two systems?
— In general I’m not a big fan of having two systems next to each other because it will lead to confusion. And two systems can also conflict with each other. So in this respect it’s better to have one that everybody is aware of and that makes sense for that respective market. And, honestly, I do not really care if it’s state-regulated or self-regulated as long as it is effective for the market. But the fact is that, looking at what we try to achieve, we try to answer the needs of the market.

— Does this refer to European countries?
— Yes, I’m speaking about European countries.

— Thank you, a very interesting answer. And what is the European experience? Do self-regulation organizations give any kind of permit or license to construction companies or is there only state licensing in the sphere of construction? Could this potentially be a source of corruption? If it could, how can it be fought? What do you think?
— I think in every country across Europe you need to have permits or licenses for construction. You cannot just build. And of course, in some countries more permits are needed than in others. For example, in the Netherlands, France and the UK, health and safety is now a very big and important thing: as the result of that, a new law is coming and you have to apply that.
Of course, there is also always the issue of corruption, and you’ve seen it with VW: they tested their cars, but it was all false! So, everywhere where legislation and permits are involved, they are rather expensive. And as a result the returns will decrease – therefore people sometimes try to avoid it. Of course, it is different in various countries but there will always be a source of corruption, because money is involved. That does not mean that we should not struggle against it.

— Just a practical question: if you want to start construction on some residential area in the UK you need a license. Who issues the license? Is it controlled by the government or by a self-regulation organization?
— The government provides for the licenses and permits. What we as an organization do is this: we make sure that people working on the construction site – as a practice manager or a quality surveyor – are licensed and skilled in the work that they do. So the government decides on the project, and we regulate the people who work on the project. That’s the difference between permits given by us and by the government. We are not involved in the project, we are involved in “the people” who work with the project.

Maarten Vermeulen: “The government provides for the licenses and permits. We as an organization make sure that people working on the construction site are licensed and skilled in the work they do”.

— Here in Russia we may have a situation when construction was started, some apartments were sold to people who invested their shares in future housing, and then the company goes bankrupt, the developers might disappear, people do not get their apartments, and they cannot get their money back… Who is responsible for controlling this? Is this the responsibility of the government or of a bank, or, say, some self-regulated organization that had given out the license, to compensate the people who suffered losses?
— First of all, when an apartment building is being constructed, there is a contract between a buyer and a seller. And they have to follow the law, local law. If people do not stick to it, then in any case they have to go to court. Besides, if people are also members of RICS, they can be sued via RICS as well, because they are filed by them and, of course, RICS can sanction the developers. So the first step is always going to court, because this is not an issue regulated by RICS – it is buying and selling, it’s a contract.
And the second thing is that if the people feel that our members, if they were involved, did not act according to our rules, then they can file for a complaint as well, so they will look at plural sanctions.

Maarten Vermeulen: If the members of RICS did not act according to our rules, they will look at plural sanctions.

— There was a construction company developing a site, and for some reason it went bankrupt and abandoned the site. The question is: who should take up the responsibility and finalize the project, who should be involved?
— In general when a company goes bankrupt it solves the problem with the government, announcing that it wants to go bankrupt. Then usually a curator, who has been appointed - a specialist lawyer who takes care of bankrupt organizations - will seek a solution that meets all the demands of the stakeholders involved. Usually the tax authorities get their share first, and then if something is left other people will be served as well, they will receive money. In the case of unfinished projects they will try to find another development or construction company to finish it or to buy it and finish it. So, usually in other European countries, a specialist lawyer is appointed and he needs to find out how to solve the situation with losses as limited as possible.

— Am I right that in the long run it is the commitment of the body which issued the license – in other words, the British Government?
— No, it may be a little unclear… Usually, when there is a situation of bankruptcy, it is companies themselves that file for bankruptcy because they cannot pay bills any more or somebody asks for their bankruptcy because they are not getting paid. In any case, it’s the court that appoints a specialist lawyer, and that’s outside the licensing system. But having said that, I think there is a responsibility with the licensing body, the government, to check if the construction company or the development company is able to deliver the project within time and on time, and has the resources to do it. So, it is not completely separate as such.

— Has there ever been a case in Europe, when dealing with an unethical constructor or developer having gone bankrupt, that it was the commitment and responsibility of a self-regulated organization to finalize the project?
— No, that can never be the case because we regulate members, not organizations, so that cannot be our responsibility. But, but when you look, for example, for evaluation, when you have to agree upon a coverage basically for the whole of Europe and Russia…because PII, post indemnity insurance, is a big thing and it will be even bigger in future, and we try to get that down for all of Europe and Russia, so that everybody has the same coverage and people know what kind of coverage is being delivered. And from that perspective we provide a service, but we never take the responsibility ourselves.


Maarten Vermeulen: “In Europe SRO regulate members, not organizations”.


— I wonder what the level of protection for the funds of self-regulated organizations in the banks in Great Britain and Europe is. For example, if a self-regulated organization, like RICS, keeps funds in a bank, and the bank goes bankrupt, will the members get their fees back? What will be done? Is there any mechanism for getting back the money? There have been a couple of cases in Russia where an SRO opened an account with the bank, it went bankrupt, and everything was lost, including the insurance.
— First of all, never put your eggs in one basket. That’s important… There must be several bank accounts. Secondly, the banks that we deal with, I mean RICS, are all what we call system banks and the government won’t allow them to go bankrupt. So systems are in place to prevent that and to protect the money of the people. In theory, it will not happen. But if it happens, it is similar to any other bankruptcy case: if we lose our money, our members’ money is lost as well. If there is a bankruptcy, as I said before, the tax authorities will be first to get their money and after they get their share, there’s nothing left.
— From your point of view, is the situation feasible whereby a member is registered with a SRO in one city, say in Moscow, but he actually provides services in another place, where he lives, in Irkutsk, for example? So, if there is a problem in Irkutsk, it is very difficult to solve it in Moscow. Is there some kind of limitation in the European market? Do you have to stick to your local chamber or local SRO?
— No, it is not possible, because you have to show local knowledge, the knowledge of local law. And the main principle is – where your work is, that’s where you are a member as well. So, I would advise against what you have said. The best example I can give is when it comes to evaluation, you can’t have value in a market when you are not being regulated in that market. So you can’t be regulated in Moscow and do evaluations in Irkutsk. Do you see my point? So that shouldn’t be allowed.


Maarten Vermeulen: “You can’t be regulated in Moscow and do evaluations in Irkutsk. That shouldn’t be allowed”.


— Besides your work and business activity in Russia, is there anything else you like here?
— Well, many things! First of all, the people. The food. The saunas. Do you want me to continue?

— And one more small question. Do you see an understanding or support on behalf of Russian authorities of the things you’re doing, of your activity?
— It’s an interesting question, because we live in a different world today compared with, let’s say, two years ago. We were very much engaged with the government, talking about lots of things, including international standards, and about what’s happening now, connected with the crisis basically….
— And our traditional question: how do you spend your leisure time if you have any – maybe some hobby?
— I have very little free time. But I’ve just finished a book on assets management. I love to cook. And I have a fantastic son I like to spend my time with.
— Thank you very much. It was an interesting discussion. And let’s hope that the times will change.

Alexander Gusev