When a regulated firm closes there is a requirement on the principals of the firm to inform RICS of the closure and provide information to demonstrate that the firm has closed in an orderly way.
The majority of firms provide this information and any new firm(s) that the principals establish can be registered without the need for further scrutiny.
Some firms do not close in an orderly manner, most usually because of insolvency or closure without having PII run off cover in place. We appreciate that firms can close for many reasons and that some closures are the result of difficult personal circumstances. However, firms that close in a disorderly manner may pose a risk to their former clients, employees, creditors and to the reputation of chartered surveyors and regulatory action is, therefore, needed to protect the public interest.
Particularly high risks arise from firms which close in a disorderly way and then rapidly re-establish themselves as a new trading entity. We use the term “phoenix firms” to describe these companies.
We have undertaken detailed analysis as to the number of phoenix firms. The number of firms is very small and primarily 1 to 4 partner firms (although it can affect firms of all sizes).
From our analysis it is clear that prevention offers better safeguards for the public than regulatory enforcement. To help firms reduce the risk, we have produced guidance on claims handling and PII guidance, where to find business advice, business models for small firms and our approach to insolvency on our Small Business Hub.
However, robust enforcement action has an important role in maintaining our role as a leading standards organisation. Given the high risk here posed by a relatively small group of companies we consider the circumstances around all regulated firms that close due to insolvency or lack run-off cover. Where we find that members have not upheld our expected professional standards we take appropriate disciplinary action.
A reminder here that all members who are considering insolvency should:
- take advice from the Insolvency Service about insolvency procedures
- take professional advice about the best course of action from an insolvency practitioner: please note that neither RICS, nor the Insolvency Service, can give such professional advice
- notify RICS Regulation, in writing, of any personal and/or company insolvency procedures immediately.
In addition, we undertake a detailed analysis of phoenix firms as they seek to register with RICS Regulation to ensure we are satisfied that the firms are suitable to hold the status “Regulated by RICS”. We have a range of powers available to us which includes:
- refusing registration
- holding the registration in abeyance pending the outcome of any outstanding disciplinary proceedings
- requiring evidence of the risk mitigation steps the new firm has in place to reduce the likelihood of a repeat business failure
- imposing controls to mitigate risk through the use of licence conditions
- requiring staff to undertake training in areas of concern
- undertaking additional monitoring
- providing additional support and guidance tailored to the firm.
It is important to recognise that we support business and enterprise – businesses failure is not, of itself, a reason for disciplinary action. Our role is to ensure that the public interest is protected by maintaining the reputation of RICS professionals and firms.
A summary of what we have done
- Increased support for members and firms through the Small Business Hub.
- Strengthened our review of all firms that enter insolvency.
- Strengthened our review of all firms’ insurance provision before deregistering from RICS Regulation.
- Run a series of roadshows on preparing for retirement (working with LionHeart).
