National standards meet local needs, European standards address the great challenges of our time

1. National standards meet local needs, European standards address the great challenges of our time Michael MacBrien Adviser to TEGoVA CIAB/TEGoVA European Valuation Conference Sofia, 11 October 2019

2. Valuation practice and standards do not exist in a vacuum. To understand the European and national valuation dichotomy, we need to understand the relation between the EU and its member states. Europe is now part of the national debate but it’s still not easy to understand the nature of what’s happening, the European/national game of mirrors. For decades, everybody thought that the conflict, the dialectic, was between federalists who wanted a classic government of Europe in charge of most policy, and nationalists who didn’t want a government and just wanted Europe to pay the farmers.

3. Nobody saw what was coming: No federal government, and yet the EU in charge of all the big issues anyway National governments are still in charge. But they’re collectively in charge of common EU policy. If you had brought that up ten years ago, everybody would have said “How can the buck stop at the desks of 28 leaders?” And yet it does. And it works.

4. All this is happening because Europeans understand that only the Union has the power to address the great questions of the day Climate warming Migration Trade wars with major powers International crime and money laundering Defense Space

5. What people may see less clearly is the Union’s first and greatest achievement … … a single EU Internal Market founded on free movement of people, goods, services and capital And it could be that not everyone understands just how much common regulation is necessary to achieve and maintain that. Although careful! The rules that enable economic integration don’t mean more ‘red tape’. They mean 27 times less red tape.

6. And it doesn’t stop at the current borders of the Union The many levels of purgatory Georgia’s European Union Integration Roadmap

7. Now let’s place valuation in that hyper-integrated EU context TheMortgage Credit Directive in general and its valuation provisions in particular are a superb illustration of the politicisation of the Union, of how real politics, real concern for the problems and needs of real people, have permeated the policy-making process. Christopher Tugendhat – plugging for UK banks and building societies Jacques Delors – No way! Legislative train wreck Antolín Sánchez Presedo – real politics at last – a European revenge against national failure

8. But what was radical was the politics behind the Directive, not the form it took, especially for valuation The texts on valuation are a perfect statement of cautious political correctness as befits the first ever appearance of valuation in EU policy: “Member States should ensurethat reliable valuation standards are in place. In order to be considered reliable, valuation standards should take into accountinternationally recognised valuation standards, in particular those developed by the International Valuation Standards Committee, the European Group of Valuers’ Associations, the European Group of Valuers’ Associations or the Royal Institution of Chartered Surveyors ….” Mortgage Credit Directive Recital 26 

9. For the Mortgage Credit Directive, the legislator could afford that traditional deference to the member states – not so the ECB The European Central bank is concerned with the safety and security ofthe banking system. It has no time for politics and political correctness. It answers to no one except the European Court of Justice. And it sees poorly valued bank mortgage collateral as a systemic component of bank failure and financial market collapse. Which is why in its Asset Quality Review Manual it has regulated the valuation of banks’ real estate collateral in detail. The next speaker, Michael Reinberg, will talk to you more about that. What matters here is that the ECB lays down that European Valuation Standards have precedence over all others, international or national.

10. Under such circumstances, it is legitimate to question the relevance of national standards The beauty of Cascais – a seminal conference that focused minds What actually is the justification for 28 national valuation standards in an EU with an Internal Market and a Banking Union? As a European Commission official once said to a TEGoVA delegation: « What’s the problem? A house is a house! »

11. If you look at the content of valuation standards: EVS 1 Market Value EVS 2 Valuation Bases Other than Market Value EVS 3 The Qualified Valuer EVS 4 The Valuation Process EVS 5 Reporting the Valuation EVS 6 Automated Valuation Models What is the special national economic culture that justifies a special, separate national valuation standard? What reason could there be apart from simple historical precedent? Apart from the dumb fact that national standards got there first.

12. Has anyone bothered to consider the ‘cost of valuation non-Europe’ the way the Ceccini report did for the whole European economy over thirty years ago leading to the completion of the Internal Market? What is the cost of developing and enforcing 28 different sets of standards? What is the use, when as soon as it rains the ECB steps in and imposes EVS?

13. Valuation standards cannot be divorced from the dominant economic and regulatory environment and now that means the EU Europe can’t afford these luxuries. It has to muscle with the big powers. Can you imagine Texas or Illinois Appraisal Standards? How much regional variation do you think the Chinese are going to tolerate? Not long ago, the boss of one of the biggest Franco-European property investment companies told me « We need a European commercial lease, not 28 commercial leases! » Same goes for Valuation Standards.

14. PART 2 So what’s left for national valuation standards? What useful role do they still have?

15. Don’t ask me …