Ethics Flashcards
How do you apply the Rules of Conduct?
- integrity, pro obligations
= conflicts of interest checks, transparent fees, protect confidential info, keep client money safe - competence
= CPD, legislation, RICS guidance - service
= understand client needs, agree scope of services, communicate clearly, keep proper records - respect, diversity
= treat everyone fairly, inclusive culture, equality of opportunity - public interest, responsibility
= raise concerns, don’t undermine confidence, respond to complaints, manage finances responsibly
Appendix A: pro obligations
Members
1. CPD
2. cooperate with RICS
3. provide info Standards & Reg Board
Firms
1. CHP inc ADR, log
2. PII
3. locum
4. cooperate with RICS
5. provide info Standards & Reg Board
6. designations
7. report under Rules for Reg of Firms
What do you understand about the Rules of Conduct case studies?
examples of application of Rules
- the fact that a tenant provides social good doesn’t mean client cannot seek to charge them rent they want; it is proper to use pro skills to provide an advantage to your client;
but cannot provide advantage improperly e.g. cannot mislead or bully a tenant, care where unrepresented - acting in public interest doesn’t mean you can’t help clients do something public may object to;
there’s a public interest in developers having ind pro advice;
but would have to act to prevent harm;
could advise client where options to balance economic/social/enviro benefits to mitigate community concerns;
can continue to act where client chooses not to take advice - cheapest financial option may not be best for client, may lead to higher costs long-term or reduced demand;
some approaches may damage client’s reputation or relationship with neighbour;
provide best, balanced option for client’s budget;
but final decision made by client, may be not most sustainable - behaviour within personal life capable of breaching Rules where conduct serious/impacts on public confidence;
e.g. social media comment bullying or harassment - may have knowledge skills resources to take on new areas of work without direct experience;
doing the work rather than referring must be in interests of client;
must be open and honest about experience;
must have PII - pro opinion needs to be honest objective;
commercial pressures or client desires not good reason to change pro opinion - info e.g. val may be communicated without breaching confidentiality if within knowledge of valuer and broad categories given (e.g. type location);
if client wants more detail, explicit consent can be sought from client A;
may refuse, can still act for both clients;
may need to consider conflict of interest/informed consent/refuse instruction - consider whether breach info personal data protected by legislation or confidential e.g. ToW;
follow procedures to report, inc to clients and regulators where necessary;
learn lessons - discussing concerns with client may be “tipping off”, illegal;
talk to senior colleague not connected to client or contract;
seek legal advice;
regulators may be able to provide advice;
carefully document decision whether to inform authorities in case challenged later;
if decide not, consider raising with client;
consider stop acting for client e.g. if continue to act illegally - recruitment decisions should be based on competence demonstrated not irrelevant factors e.g. discrimination
- how serious a breach e.g. fraud depends on facts of case and member’s knowledge and culpability for failures
- if you and sibling not financially dependent on each other, and your company not going to be overseeing work for client, no actual or potential CoI;
you do not stand to benefit financially from recommending sibling’s company;
an outsider who had been given all facts would not think you were acting outside client’s best interest;
however, poss of perception of CoI;
managing client’s perceptions important to provide good service
How do you use the Ethics decision tree?
- sufficient facts?
- legal?
- Rules?
- clear reasoning?
- decision informed?
- actions public?
How do you adhere to the CPD compliance guide?
- 20 hours Jan to Dec
- 10 formal
- pro and ethical standards rolling 3 years
- record online by 31st Jan
- obligations for firms training
How do you use the CPD decision tree?
Relevant!
Formal:
- formal structure
- learning objectives
- interaction / assessed by expert or test
Informal:
- self-assessment
- formally structured but no learning objectives
- formally structured with learning objectives but no interaction or test
How do you apply “Conflicts of interest, 2017”?
PS, 1st ed
- don’t represent client where CoI or significant risk
unless Informed Consent - IC where member satisfied proceeding is:
in interests of all affected;
legal;
competent and diligent advice - must identify and manage CoI
- must record decisions / IC
- Party Conflict
- Own Interest Conflict
- Confidential Info Conflict
Info Barrier
Informed Consent:
- giving willingly by party having understood:
is, or risk, of CoI;
facts material to CoI;
that a CoI may affect ability to act fully in interests
Consider:
- perception of lack of integrity?
- embarrassment?
- unable to advise objectively ind?
Firm systems and controls:
- process
- database
How do you identify and manage conflicts of interest?
Firm systems and controls:
- process
- database
- Party Conflict
- Own Interest Conflict
- Confidential Info Conflict
Consider:
- perception of lack of integrity?
- embarrassment?
- unable to advise objectively ind?
- don’t represent client where CoI or significant risk
unless Informed Consent - IC where member satisfied proceeding is:
in interests of all affected;
legal;
competent and diligent advice - must identify and manage CoI
- must record decisions / IC
Informed Consent:
- giving willingly by party having understood:
is, or risk, of CoI;
facts material to CoI;
that a CoI may affect ability to act fully in interests
Info Barrier
How do you apply “Countering bribery and corruption, money laundering and terrorist financing, 2019”?
PS, 1st ed
Anti-bribery requirements:
Risk Assessment – Proportionality – Monitoring and Review
Due Diligence
Top Level Commitment (senior person responsible, governance, policy inc register of gifts)
Communication (training, reporting breaches/whistleblowing)
Anti-money laundering requirements:
Money Laundering Reporting Officer (MLRO) (Suspicious Activity Report SAR???)
Regular training
Risk assessment for business
Risk assessment for each transaction on client/other party
inc identify red flags
Customer Due Diligence
simplified/standard/enhanced (PEPs)
identify parties, verify ID, purpose of transaction, source of funds, beneficial owner
(report any discrepancies on beneficial owner Companies House)
How do you apply the “Anti-money laundering - red flag indicators, 2017”
Client:
- secretive evasive ID/beneficial owner/source of funds/transaction reason
- uses intermediary / disguising real client
- avoids personal contact
- criminal associations
- high knowledge ML processes
- PEP or sanctions
Parties:
- high-risk country e.g. Pakistan, Syria, Turkey, Iran, Iraq
- connected without business reason
- family or other business connections causing doubts as to real reason for business
- multiple transactions over short period
- involvement unsuitable e.g. under age
Source of funds:
- cash
- unexplained payments 3rd parties
- doesn’t appear to have means to pay/fund transaction acc to legitimate income source
- loans from non-institutional lenders
- use of corporate assets to fund private expenditure of inds
- use of multiple or foreign accounts
Transaction:
- size, nature, frequency, manner
- early repayment
- short repayment periods for borrowing
- excessively high value on assets/securities
- potentially loss making
- unnecessarily complicated structures/steps
- repetitive instructions involving common features/parties or bank to back transactions with assets rapidly changing value
- unusual for client, type of business, age of business
- unexplained agency, requests for short cuts or changes to transaction esp last min
- no obvious commercial purpose to transaction
Instructions:
- outside expertise, client not local or no explanation as to why chosen
- willingness to pay high fees
- unexplained changes to legal advisors
- client appears unconcerned or lacks knowledge of transaction
Geography
What is money laundering?
Money laundering is the action of concealing the source of proceeds of criminal activity to disguise their illegal origin (“cleaning” money).
Could take place through hiding/transferring/recycling illicit money through one or more transactions or converting criminal proceeds into seemingly legitimate property.
Why is the UK property market a target for ML?
UK property purchases are an attractive method to launder illicit funds due to the large amounts of money involved and the complex ownership structures that can exist when purchasing property.
Letting of residential or commercial properties involves a regular flow of funds.
Safe country with rule of law.
How do you adhere to Money Laundering, Terrorist Financing Transfer of Funds Regs 2017? (check latest regs?)
Reg 8 – requires diff types of “relevant persons” to register with a supervisory body and follow anti-money laundering regs.
Reg 21 – requires relevant persons to appoint a nominated officer who will be responsible for AML compliance within the firm known as money laundering reporting officer (MLRO).
Reg 18 – firms must identify and assess the risk of money laundering and terrorist financing in its business; this written risk assessment must be provided to the supervisory body on request.
Reg 24 – regular training must be provided to relevant employees on how to recognise and deal with activities that could give rise to money laundering.
Reg 27 – customer due diligence (CDD) must be undertaken to establish and verify the identity of customers and the nature of the transaction.
How do you carry out due diligence?
Standard Due Dil:
- Firms must:
Identify the customer
Identify any beneficial owner
Verify the customer’s ID
Undertake CDD on any intermediaries
Assess the purpose and nature of the transaction
- Companies:
Land reg checks
Establish the beneficial owner and undertake CDD in line with inds
Request certificate of incorporation, articles of association and share register
- Trusts:
Establish the ID of the person who created the trust, the trustees and beneficiaries
Undertake CDD on the above parties as inds
Trusts are a generally favoured method of money laundering
- Inds:
Land reg searches
Gov issued ID e.g. driving licence, passport
Consider obtaining certified copies if doc not being reviewed in person
Source of funds checks e.g. bank statement and agreement in principle
Enhanced Due Dil:
- Additional measures to take:
Obtain info from independent sources to establish identity
Request that copies of docs are certified by an approved person; checks can be undertaken on the certified e.g. check an accountant is registered with their pro body
Ensure any monies received are from a bank account in the name of the customer
Establish source of wealth in addition to establishing source of funds
Undertake more regular and stringent monitoring checks throughout the transaction
How do you verify ID?
Good Practice Guide (GPG) 45 helps you decide how to check someone’s identity.
5 parts:
- get evidence of the claimed identity
- check the evidence is genuine or valid
- check the claimed identity has existed over time
- check if the claimed identity is at high risk of identity fraud
- check that the identity belongs to the person who’s claiming it
4 different levels of confidence:
low confidence
medium confidence
high confidence
very high confidence
Electronic identification services:
- Use of third party electronic identity services are becoming more widespread
- These services can assist with establishing the identity of customers, identifying PEPs and beneficial ownership of companies
- Factors to consider:
Ensure that the provider is registered with the Information Commissioner’s Office
Ensure that the provider complies with data protection requirements
Ensure that the firm has sufficient understanding of how to upload information, what data is used to verify identities and how the information is stored
Ensure that records are still available for the required period of time and that the firm can still access these records if the provider ceases trading
Which RICS firms are required to register with HMRC as the supervisory body for ML? (CHECK CORRECT?)
estate agents, letting agents where the rent received exceeds more than 10,000 Euros per month
How do you adhere to Proceeds of Crime Act 2002? (CHECK LATEST?)
- Part 7, s330 requires firms to submit a suspicious activity report (SAR) to the National Crime Agency (NCA) if they know, suspect or have reasonable grounds to know or suspect that a person is engaged in, or is attempting, money laundering
- Usually a staff member in a firm will report suspicious to nominated MLRO who will submit SAR if appropriate
- NCA will respond to either grant permission to proceed or state you do not have permission to proceed with transaction
- Failure to disclose is a criminal offence which could result in a prison sentence and/or a fine
- Part 7, s333 makes it an offence for firms, inc members of staff, to let clients or customers know their suspicious activity has been reported to the MLRO or NCA (“tipping off”)
- Tipping off, either deliberately or inadvertently, is an offence and could result in a prison sentence and up to 5 years and/or a fine
What is a beneficial owner?
Beneficial ownership means those who ultimately own or control an asset, for example, a property or company. It is useful to know who the beneficial owner(s) of corporate structures are, as the beneficial owner(s) may be different from the legal owner(s).
For example, where an overseas entity is registered as the legal owner on the title deed of a property at HM Land Registry, the beneficial owner(s) are the individual(s) who own or control the overseas entity.
For example, where a corporate shareholder (eg a company) is provided as the owner of a company at Companies House, the beneficial owner(s) are the individual(s) who own or control the corporate shareholder.
What is a Person of Significant Control?
What makes an individual a PSC of a UK company?
Under Schedule 1A of the Companies Act 2006, an individual (“X”) meets one or more of the following conditions in relation to a company (“Y”), they must be registered as a PSC:
X holds, directly or indirectly, more than 25% of the shares in company Y.
X holds, directly or indirectly, more than 25% of the voting rights in company Y.
X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of company Y.
X has the right to exercise, or actually exercises, significant influence or control over company Y.
The trustees of a trust or the members of a firm that, under the law by which it is governed, is not a legal person to meet any of the other specified conditions in relation to company Y, or would do so if they were individuals, and, X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.
In 2016, Companies House set up the People with Significant Control (PSCs) register, which was the first of its kind in the world. This requires UK companies, and other legal entities, to identify who owns and controls them (are their PSCs), register their details with Companies House, and keep these details up to date. The two main objectives of the PSC register are to provide transparency around the ownership and control of UK corporate structures and to help prevent misuse of UK corporate structures.
How do you adhere to anti-bribery and anti-money laundering requirements?
Anti-bribery requirements:
Risk Assessment – Proportionality – Monitoring and Review
Due Diligence
Top Level Commitment (senior person responsible, governance, policy inc register of gifts)
Communication (training, reporting breaches/whistleblowing)
Anti-money laundering requirements:
Money Laundering Reporting Officer (MLRO) (Suspicious Activity Report SAR???)
Regular training
Risk assessment for business
Risk assessment for each transaction on client/other party
inc identify red flags
Customer Due Diligence
simplified/standard/enhanced (PEPs)
identify parties, verify ID, purpose of transaction, source of funds, beneficial owner
(report any discrepancies on beneficial owner Companies House)
How would you use the Register of overseas entities?
In 2022, Companies House set up the Register of Overseas Entities (ROE), which was also the first of its kind in the world. This requires overseas entities who own UK property to identify who their registrable beneficial owners are, register their details with Companies House, and keep these details up to date. The two main objectives of ROE are to help combat money laundering and achieve greater transparency in the UK property market.
What makes a person a beneficial owner of an overseas entity?
Under paragraph 6 of Schedule 2 to the Economic Crime (Transparency and Enforcement) Act 2022, a person (“X”) is a beneficial owner of an overseas entity or other legal entity (“Y”) if one or more of the following conditions are met.
X holds, directly or indirectly, more than 25% of the shares in Y.
X holds, directly or indirectly, more than 25% of the voting rights in Y.
X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.
X has the right to exercise, or actually exercises, significant influence or control over Y.
The trustees of a trust, or the members of a partnership, unincorporated association or other entity, that is not a legal person under the law by which it is governed meet any of the conditions specified above in relation to Y, and, X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity.
How would you adhere to “Client money handling, 2019”?
PS, 1st ed
Holding client money:
- client money account at bank, firm has exclusive control
- no sums other than client money paid in with interest
- account includes word “client” and name of firm
- money immediately available unless other arrangements in best interest of client and client has given express instructions in writing
- penalties only paid if client has provided consent and will not be overdrawn; otherwise paid from office account
Info to clients in writing:
- confirmation client money will be held in account inc bank details
- advice to clients who pay fees in advance for surveying services (but not property agent) that money not covered by Client Money Protection Scheme
- copy of firm’s procedures for handling client money
Receipts of client money:
- all client money received paid into account promptly (no later than 7 days)
- where mixed monies received, office money transferred promptly
- interest accrues to client
- prompt action to identify owner of any unidentified client money received, pay to reg charity where owner cannot be identified after 3 years
Payments from client account:
- all payments made from client accounts made to or on behalf of client and on written instructions or as agreed in management agreement
- when fees due, unless client has given authorisation, invoice before withdrawing money for firm’s fees
- check sufficient funds before making payments
- written permission for any direct debits and standing orders or bank costs
Accounting records and controls:
- keep records and accounts showing all dealings
- systems, procedures and controls to ensure payments in accordance with instructions
- regular client account reconciliations
- publish written procedures on firm’s website provide copy to anyone who reasonably requires
- control and protect accounting systems and client data and computer systems for access, firewalls, back-ups and disaster recovery
Compliance:
- AML regs
- RICS anti-bribery and AML
- any breach investigated and remedied promptly
- record any breach and inform client/RICS where appropriate
- inform client/RICS/insurers if money misappropriated
Appendix A: Examples of client and office money
How would you handle client money?
RICS members must:
- compliance with all anti-money laundering regs
- compliance with RICS PS on countering bribery etc.
- follow procedures for handling client money at firm
- not override controls in place to protect client money
- disclose to senior member of firm/regulator immediately if become aware of any risk or misappropriation of client money and record disclosure
How would you adhere to RICS insurance requirements?
“Risk, liability and insurance”, 2021
GN, 1st ed
Top tips:
- T&Cs: 3 key terms to consider for every instruction:
scope of work;
basis on which fee calculated;
liability cap
- 3rd party reliance
- PII in line with nature, proportionate to risks, RICS requirements
RICS insurers:
RICS have a list of insurers that’s renewed annually.
RICS requires that regulated firms must obtain their PII from a listed insurer that is rated by either AM Best, with a credit rating of at least B+, or Standard & Poor, with a credit rating of at least category BBB.
What does “claims made” mean in terms of insurance?
Claims made: The basis on which most professionals’ (and all members’) professional indemnity insurance is provided. It means that the relevant policy for any claim is the policy in place when the claim is made (not when the work is provided to the client, or any other time).
Due to the limitation period, for services provided in 2021, the firm should continue buying insurance every year until at least 2027.
What is indemnity?
Indemnity: A contractual agreement sometimes given by a party providing professional services to ‘hold harmless’ or ‘make whole’ the client in respect of the client’s losses arising from the matter.
What is negligence?
Negligence: Negligence is a ‘tort’. In the case of a professional, negligence is a failure to provide services with the standard of skill and care that would be expected from a reasonable body of the professional’s peers.
What is professional indemnity insurance?
Professional indemnity insurance (PII): Insurance to cover the cost of compensating clients for loss or damage resulting from negligent services or advice provided by a business or an individual.
What if you are unable to obtain professional indemnity insurance?
Assigned risks pool:
The ARP is open to all UK RICS regulated firms that are unable to obtain PII, which meets the minimum requirements of the RICS, in the insurance market.
What is run-off cover?
Run-off insurance: A form of insurance that can be bought to provide cover for claims arising after a firm or individual has ceased trading. Members have a particular need for it because a member’s PII is provided on a ‘claims made’ basis, meaning that there will only be insurance cover for a claim if there is a policy in place when the claim is made – even if the claim is made after the member (or firm) has ceased practice.
There is still a risk of a firm or its partners being sued if it ceases practice during that intervening period, which is why RICS requires firms to buy ‘run-off’ PII to cover the period after ceasing practice. RICS’ regulatory requirement for run-off cover is contained in the current edition of Professional Indemnity Insurance requirements. A firm should undertake a risk assessment about whether run-off cover is required for a longer period of time to cover the ‘long-stop’ limitation period of 15 years.
What is a tort?
Tort: The umbrella term for all civil wrongs recognised by law other than breach of contract. The most commonly referred to tort is the tort of negligence.
What is a limitation period?
The limitation period for bringing a claim against a member for breach of contract will expire 6 years from the date on which the member performed the service required under the contract, for example by providing the survey or valuation report.
Where the claim is brought as one for the tort of negligence, rather than for breach of contract, the period will often be longer, because the right to bring a claim will not arise until the claimant actually suffers a loss as a result of relying on the advice of the member.
In addition, in 1986, an important change was made to the Limitation Act 1980 to allow an extra period for a claim to be brought, because it was seen to be unfair that the six-year period could run out before the claimant realised they were legally entitled to bring a claim. Since then, a claimant who brings a claim in negligence has the opportunity to bring that claim up to three years after the date on which the claimant learned (or could reasonably have found out) about their entitlement to bring the claim. This three-year period applies even if it results in a period longer than the conventional six-year period referred previously, but it is subject to a ‘long-stop’ period of 15 years from the date of the negligent act.
How long should you retain files for?
Given the ‘long stop’ limitation period of 15 years, RICS recommends that members retain their files for 15 years after providing any professional services, to ensure that they have the records necessary to respond to a claim.
Why is professional indemnity insurance required?
- to ensure that the firm’s clients do not suffer financial loss which the firm cannot meet
- to ensure that, if the firm faces a claim, it is protected from financial loss that it cannot meet from its own resources
- protects the insured member/firm against the consequences of its liability to pay damages to third parties for breaches of pro duty that it commits through its pro activities
What are professional indemnity insurance requirements?
must be adequate and appropriate:
- on “each and every” claim basis or aggregate plus unlimited round the clock reinstatement basis
- RICS min policy wording at least, at min on a full civil liability basis
- min level of indemnity based on firm’s turnover previous year:
£100,000 or less = £250,000
£100,001 to £200,000 = £500,000
£200,001 and above = £1,000,000 - maximum level of uninsured excess:
up to and inc £500,000 = greater of 2.5% or £10,000
over £500,000 = 2.5%
What are run-off cover requirements?
- for consumer claims, requirement is for a limit of £1,000,000 in all for a period of 6 years from the expiry date of the policy in force at the time of cessation
(may be arranged and paid for on an annual basis) - for non-consumer claims, must have adequate and appropriate run-off for a min of 6 years from cessation of practice
(may be arranged and paid for on an annual basis)
How do you act with integrity?
honest and ethical, treat all with respect
