Removal from lender panel greatest risk for conveyancing firms

Being removed from a lender panel is the biggest risk faced by conveyancing firms according to SRA research seen by Solicitors Journal.

The findings have emerged out of the regulator’s recent visits to 100 firms over the summer, the majority of which turned out to be members of at least one lender panel, said SRA manager Helen Venn (pictured).

The visits were part of the SRA’s conveyancing strategy review, which aims to identify and provide tools to manage regulatory risk in this sector.

“Most firms in the sample carried out residential conveyancing and the biggest risk they saw was being removed from a lender’s panel as a result of the recession,” Venn said.

According to the former crime solicitor, over-reliance on panel appointments could be a significant regulatory risk as it can undermine a firm’s financial stability.

Venn said the trouble with identifying financial risk was that it tended to become apparent late in the day, typically on a Friday, the date property transactions usually complete.

She said firms were traditionally reluctant to notify the SRA of their financial difficulties early on for fear the regulator would intervene and close them down.

However, she said, early notification would allow the SRA to help organise an orderly wind down rather than intervene at the last minute, and ensure that work in progress is distributed to other solicitors locally.

Property fraud

The research also showed that property fraud remained a major concern for conveyancers, with 1 in 4 saying they had experienced money laundering attempts.

In these cases, firms said they were alerted by early warning signs and refused to act, but Venn remained concerned that firms were vulnerable.

According to the research, comparatively few firms – two in five – were part of a quality assurance scheme such as Lexcel or the Law Society’s Conveyancing Quality Scheme, which aim to improve risk management.

Where fraudsters managed to “get into a firm” – convincing the firm, often unwittingly, to act for them – it was a lot more difficult for solicitors to extricate themselves from the fraud and the risk of future criminality increased, Venn continued.

Her  greater concern however came as 3 in 4 firms said they were ‘unlikely to experience fraud’. “A lot said they’ve had the same clients and were possibly over-confident about their processes, but were they sufficiently informed about the risk,” she asked.

She warned solicitors about clients coming with “a large amount of cash, no local connection, or no clear reason they would be coming to you”.

On the positive side, she said three in four wanted more training on money laundering and property related crime.

Other findings indicated that 34 per cent of conveyancers had some sort of referral arrangement in place but firms were less concerned about those.

One in three said they had a referral arrangement with estate agents, with few reliant on a single referrer for leads.

 

How the SRA has rated risk in the conveyancing sector (by order of importance):

Property related fraud: 51 per cent Financial stability: 17 per cent Conflict of interest: 12 per cent Information costs: 10 per cent Referral arrangements: 5 per cent