Conveyancers warned to tighten mortgage fraud procedures

Conveyancing firms should review their mortgage fraud and money laundering procedures as the recession tightens it grip on the economy, the SRA has warned following visits to 100 firms.

The visits, the last of which concluded last month, were part of the longer-term conveyancing strategy review which aims to identify and provide tools to manage regulatory risk in this sector.

They are likely to result in the SRA issuing a more practical conveyancing fraud policy bridging the gap between the old prescriptive rules and the new outcomes-focused approach.

This would include “more practical pointers, case studies and warning signs”, according to Helen Venn, former crime solicitor turned SRA manager (pictured).

Venn is in charge of running one of the two pilots transitioning regulatory supervision from rules based to outcomes focused, looking at conveyancing as part of a number of “themes”.

She said the visits, which included questionnaires asking firms to explain the processes they have in place, confirmed the regulator’s suspicions about the types and levels of risks.

“Our initial observations following the visits is that we have identified the right risks in our draft strategy review. These range from conflicts of interest to referral arrangements, and from costs information to money laundering and financial stability,” Venn said. “The latter is increasingly a concern in the current economic climate.”

Mortgage fraud - providing lenders with deliberately incorrect information – is, in the main, either committed by clients taking advantage of firms with insufficiently robust systems in place, or by dishonest solicitors.

Conveyancing fraud still accounts for more than half of the value of professional indemnity claims against solicitors, with payment from the Compensation Fund more than doubling between 2008 and 2012, rising from £9.23m to £21.2m.

While some claims arose from poor quality work, most were the result of “weak risk management and compliance systems within the practice resulting in a failure to detect fraudulent activities or other dishonesty”, according to the SRA.

Venn said firms needed to ask themselves a number of questions about the robustness of their systems. For example, she said: “Who’s their money laundering officer, what training is provided, how are staff trained to identify money laundering fraud, how often are they updated – updates are a useful prompt to keep the pressure – what are the processes with new clients, do they have a warning signs list, do staff know what they need to do if they believe they have spotted possible fraud and do they know how to raise suspicious activity.”

The expected new policy is also likely to provide greater guidance on the action conveyancers should take, including being prepared to refuse to act if in doubt, query whether a statement might be untrue, and make sure proper identification checks are carried out.

Lawyers will also be reminded to watch out for suspicious signs, such as clients being reluctant to come to the office, a sale price significantly lower than market value, payments in cash, lack of clarity over the source of funding, and clients only using gmail account or only mobile phone numbers.