Heathcote: Some conveyancers reliant on client accuont interest
Licensed conveyancers will be encouraged by their regulator to move away from the risks of client account as it becomes more practical, an industry roundtable has heard.
Organised by the Council for Licensed Conveyancers (CLC), the event was also told that conveyancers were nervous about the shift to upfront material information (MI) but there were reasons to see it as a significant opportunity – and keep an eye on unregulated competition too.
The only real alternative to client account at the moment is a third-party managed account (TPMA), but take-up has been slow among both CLC firms and those regulated by the Solicitors Regulation Authority (SRA), despite both regulators encouraging their communities to investigate it.
Speaking on a recent Legal Futures webinar, SRA chief executive Paul Philip said the cost of regulation would “drop like a stone” if solicitors were not allowed to hold client money, and it is considering the issue as part of its consumer protection review.
Ed Boal, head of legal at Shieldpay, the main TPMA provider, told the roundtable that there was a commonly held belief that “operating a client account gives legal teams control, and that control is a good thing”.
He said: “This perceived ‘control’ is not always a good thing, because with it comes the responsibility and additional burden of complying with the rules, auditing, contributions to the compensation fund, costlier indemnity insurance, cybersecurity risk, and anti-money laundering compliance.
“These are not things that law firms were established to have to deal with. They are there to advise their clients and provide a legal service.”
Nicky Heathcote, chair of the Conveyancing Association, suggested that the high rates of interest firms received last year on client money helped some survive the fall in transactions. There were other initiatives, like the Bank of England synchronisation project on settlement payments, which would reduce client account interest too.
“Rightly or wrongly, some conveyancers have based their business model on having an income stream from that interest.”
At the same time, said Angela Hesketh, the head of market development (UK) at PEXA, many compliance officers at firms would be happy to wave goodbye to the risks inherent with client account.
Stephen Ward, the CLC’s director of strategy and external relations, said: “We see so many problems with client accounts and the risk of being a victim of fraud is significant. It is much reduced if you use one of these other tools.
“At the moment, we’re not looking to mandate a move away from client accounts but, as tools become more easily accessible, we will be doing more and more to encourage firms to remove those risks from their practices.”
MI has become a big talking point in the wake of National Trading Standards implementing in full the rules on the information sellers need to provide when they put their property on the market, and indirectly triggered last month’s Law Society special general meeting.
This raised the question of whether conveyancers could become involved earlier in the process, with Trading Standards advising they should be.
Sally Holdway, CEO of tech company Teal Legal, told the event: “We are not there yet but we’re starting to see that shift in where conveyancing starts, to be going from the point of offer to the point that the property is marketed and listed.”
Ms Heathcote identified “nervousness amongst the conveyancing community” about how much this was going to put pressure on their workloads for no additional fee.
“We are encouraging our conveyancers to think about what products and services they can provide and what to charge for it.” But there were also worries that upfront information could increase conveyancers’ liability.
Henry Hadlow, co-founder of Juno, a conveyancing firm regulated by the CLC, said estate agents he worked with were often keen to see the lawyer instructed when the property was listed.
“I agree with the nervousness around upfront information, because the search providers are saying, ‘Here is the information, but you cannot rely on it’, and if it is coming from the estate agent, as a law firm we cannot rely on it.”
Law firms also needed to be wary of unregulated providers coming into the market to provide MI services as it is not a reserved legal activity.
“It is the greatest opportunity for lawyers to get involved early, but it is also one of the greatest threats,” said Ms Holdway.
“We are seeing a bit of a land grab from unregulated providers collating the upfront information, saying, ‘Okay, if we can capture that instruction from day one, then we will have control over where the rest of the transaction flows to’.”
My great concern is that we seem to be going down a rabbit hole. Law firms have always had account departments who deal with the money side of the conveyancing transaction. Farming this off to a third party does not relieve the law firm of their responsibility to account to the client. What evidence is there that moving the Client account away from ‘Regulated ethical Professionals in favour of newly formed companies will be any safer. There will still be a need for rules, auditing, contributions to the compensation fund, expensive indemnity insurance, cybersecurity protection, and anti-money laundering compliance.
“These are not things that law firms were established to have to deal with. They are there to advise their clients and provide a legal service.” What rubbish! Conveyancing has always been involved in the transfer of funds and therefore have had accounts rules which have had to be adhered to!!
“operating a client account gives legal teams control, and that control is a good thing”. Accounts teams look after the money and are the gate keepers. What’s being suggested is moving control from the internal Accounts teams, to unknown third parties.
The SRA need to do the job that they were set up for and regulate all elements of what Lawyers do and not try to pass that responsibility to the FCA .