Regulators have hinted at a rethink on rules around conveyancing firms holding client money as they consider risks posed by the sector.
SRA executive director Crispin Passmore (pictured) told the Conveyancing Association conference yesterday that the risk of financial instability and firms collapsing is still a concern.
Passmore noted that while the number of residential property transactions is nearly 30% higher than a year ago, the sustainability of the market is uncertain and growth remains ‘extremely variable’ from region to region.
The biggest risk, he told delegates, continues to be the misuse of client money, either through incompetence or dishonesty. ‘In 2013 we reported an increase in the number of cases of misuse of money or assets that we were dealing with and this trend remains a concern,’ said Passmore.
The problem, he explained, is found across a wide range of firms, with larger practices failing to detect a rogue individual or group through weak prevention systems and in smaller firms where money is sometimes used to prop up the business.
‘The whole issue of solicitors holding client money is an interesting one,’ added Passmore. ‘What alternatives might there be? Could we, for example, find alternatives to the solicitor holding client money? The bar uses an escrow account model – what can we learn from that? How do other jurisdictions manage these issues and risks?’
Another emerging risk to firms is the increasing number of bogus firms stealing identities of existing firms or individuals.
One recent example involved a couple who instructed solicitors to help them buy a house. That firm was contacted by a seemingly reputable conveyancer claiming to represent a selling party.
Contracts were signed and the mortgage loan transferred before it emerged that the transaction had been set up by a fraudster who had stolen the mortgage advance.
Passmore said the firm was found not to be at fault as it had taken proper steps to check the conveyancer’s identity, but the case had a damaging impact on its reputation.
‘This is a huge risk to consumers losing money or confidential information and to the reputations of your law firms. It’s therefore in all of our interests to safeguard against this,’ he said.