There are changes afoot with the Solicitor Regulatory Authority’s plans for conveyancing firms. During the course of the year the SRA will be carrying out a major review of the regulation of Solicitors undertaking conveyancing and the holding of client money because of the risks posed by a small number of firms engaged in property-related fraud and money laundering.
The thrust of the proposals is to ensure conveyancing firms take seriously the risks and establish good compliance and risk management systems. I am sure that those firms who take conveyancing seriously will already be taking these risk seriously of not by choice by reason of pressure from their PI insurers.
The Strategy is due to be published in October and will operate alongside the Enforcement Strategy published on 13th January 2011. It will set out how the SRA will engage with firms to ensure that the procedures etc comply with the Principles, achievement of the Outcomes in the new SRA Code of conduct and compliance with the new Handbook.
So why is there a need for a strategy? Well believe it or not but Conveyancing claims represent about 50% of the value of professional negligence claims. Payments made by the fund have more than doubled over the last few years, tying in with the downturn in the property market.
So how will the SRA will engage with the profession and other stakeholders to ensure it gets the approach to the risks posed by conveyancing correct? We are told The SRA will draw on the information and experience available (through the Law Society), clients (including lenders) and insurers.
If issues are identified the SRA will work with firms to put matters right and it suggested enforcement action will be a last resort. The Strategy indentifies the issues that the SRA will be looking to identify and which include:
• Conflicts of Interest
• Referral Arrangements
• Costs Information (including publicity about fees)
• Financial Stability
• Property Related Fraud and Money Laundering
• Acting for Buyer and Seller
• Acting for two Buyers in a Contract Race
• Acting for a Buyer and Lender where the Lender asks a firm to go beyond standard Instructions
• The potential Conflict between duty of disclosure and duty of confidentiality when acting for Buyer and Lender
Firms will be expected to assess these and other conflict risks, and ensure that the systems are in place to identify and mitigate the risks.
The Firm’s referral arrangements will also be under scrutiny. We will be expected to assess these and other referral risks, and ensure systems are in place to identify and mitigate the risks presented by the following:
· Valuable referral arrangements could compromise a firm’s integrity, professional judgement or independence.
· Reliance on one-third party for a high proportion of conveyancing work could impact upon its financial stability.
The provision of cost information is another high profile area of the Strategy. Firms will need to ensure that their fees and costs are fairly expressed and not misleading.
Concerned about how financial instability could make firms more venerable to inappropriate pressures the Strategy will be focusing on the identification of firms who only do conveyancing or a significant part of their income is as a result of doing conveyancing. These firms will need to consider what systems and controls to put in place for monitoring their financial stability and economic viability.
The Strategy will also take the opportunity to review the risks associated with property related fraud and money laundering because a large proportion of the value of payments from the Compensation Fund represents payments related to fraud in connection with conveyancing.
Firms will need to determine what policies, procedures, systems and controls they should put in place to minimise the possibility of being targeted for criminal activity. Again this seem to be re-emphasising the risks and need for processes that we have all had to live with and act upon for some time now. I question whether there is anything new here.
So what tools will the SRA use to indentify these risks? The SRA will use a variety of strategies and tools to test the systems and controls firms put in place to address the risks they face.
The systems and controls will differ depending on:
• The size and complexity of the firm
• The nature of the conveyancing work undertaken (e.g. e-conveyancing)
• The firm’s client base (e.g. are clients local or national)
The tools and powers will include:
• Desk-based reviews
• On-site visits, including interviews
• Use of formal investigative powers, including requests for documentation and attendance of individuals at formal interview
• Obtaining documents or information from third parties, including law enforcement agencies
• Mystery shopping
• Thematic visits
The SRA has produced a transition manual “OFR at a glance http://www.sra.org.uk/solicitors/handbook/ofr-quick-guide.page. It contains Q & As on ethical dilemmas etc. It is not intended to replace or be a substitute for firms’ own internal procedures.
Overall there is not very much new within this consultation document; much of what is proposed reflects the risk assessment that many of us are now required to undertake as part and parcel of our PI insurance application. At the end of the day it’s the PI insurers who hold all the cards and who will clearly irrespective of the SRA’s moves determine the fate of many conveyancing practices.