Cutting the need for solicitors to hold client money in conveyancing transactions is among measures being looked at by the Solicitors Regulation Authority as part of a review of its strategy to help firms reduce the risk of mortgage fraud.
The SRA announced today that it is looking again at its draft conveyancing strategy, published in April 2011, to ensure it provides ‘appropriate support’ to solicitors.
The regulator said it will carry out a comprehensive review of current practices focusing on holding client money and the use of undertakings. It said the review will run until the end of 2013. One area under consideration is whether it would be possible to amend the conveyancing process in order to reduce the extent to which firms need to hold client money.
Following engagement with the insurance industry, the SRA said it has decided to undertake work to get better information on the risks faced by solicitors during the conveyancing process and identify best practice to guard against them and help firms address any lack of robust risk management systems. The regulator has already visited 100 firms and feedback from them is being analysed.
The SRA pointed to statistics showing that conveyancing has over the years accounted for a high proportion of claims on solicitors' insurance and the compensation fund and an ‘unacceptable volume’ of complaints against the profession, as the reason to target this practice area.
It said conveyancing claims represent about 50% of the value of professional indemnity claims arising against firms, and noted that there has been a substantial increase in payments made by the fund in the past few years from £9.23m in 2008 to £21.2m for 2010.
SRA statistics over the past four years reveal that in 2008 there were 112 claims on the compensation fund for mortgage fraud, accounting for 6% of the 1,803 claims. The figures peaked in 2009 and 2010 when there were respectively 376 claims relating to mortgage fraud (8% of the total) and 324 (16.5% of the total).
In the first two quarters of this year, there have been 110 claims related to mortgage fraud; 15% of the total number of claims.
SRA executive director for policy Richard Collins said: ‘It is clear that we need to continue to target resources on conveyancing - both to assist firms in managing their own risks and compliance and to identify and prevent dishonest behaviour; either by third parties seeking to use solicitors' firms for fraudulent transactions or by a small proportion of firms themselves.’
He said: ‘As a public interest regulator we need to ensure firms take seriously the risks in this area and establish good compliance and risk management systems so as to demonstrate an effective degree of internal control.’