CONVEYANCING


In the modern world, even simple


property transactions are now conducted on a global scale. When a tower block is sold in London, for example, there is a good chance that at least some inbound capital has been used to finance the purchase. Clearly, firms will need to determine not only where these funds are coming from, but also whether there are any other parties who may be involved in financing the purchase ‘behind the scenes’. With international transactions like these


now commonplace, it’s easy to see why global identity checks are so important in the fight against mortgage fraud. All of this information – especially the source of the funding – needs to be verified accurately. In other words, just because this capital has come from a bank doesn’t mean that it’s safe; firms will need to verify bank accounts and statements carefully, especially since keeping a detailed evidence trail is very important in cases like these. Remember, the Council of Mortgage Lenders (CML) will not hesitate to pass on the responsibility for any fraudulent activity to the conveyancer, where possible.


Know Your customer Although Know Your Customer (KYC) is a ubiquitous part of due diligence in many sectors, it still has a special relevance in the conveyancing sector because of the prevalence of mortgage fraud. The sharp contraction in lending led to more customers making false claims to secure loans, which in turn led to an increase in this kind of fraud, lenders are now making negligence claims against law firms – and PII continues to rise exponentially. To protect themselves, firms need to


follow the guidance in the Law Society’s ‘green card’ warning on property fraud and ‘blue card’ warning on money laundering to ensure that they are taking reasonable steps to check the identity of their clients (including anyone who is required to sign the mortgage deed or other document connected with the mortgage). Lenders are calling the shots here, which means that firms need to take any steps necessary to avoid falling foul of the lenders.


Breaching the code In one high profile court case at the end of last year, the Solicitors Disciplinary Tribunal (SDT) ordered that a Sheffield solicitor be suspended from practice for an indefinite period, as he had recklessly acted in breach of Rule 1 of the Solicitor’s Code (“You must act with integrity”) in relation


20 DECEMBER 2010 PROPERTYdrum


to conveyancing matters where there had been signs of mortgage fraud. The allegations that the SDT had found


against him were very serious. According to the SDT’s notes, the individual concerned had been extremely reckless in his practise of conveyancing, had failed to appreciate his duties to lender clients, and had acted in flagrant disregard of the Green Card Warnings. As such, and in order to protect the public and to maintain confidence in the profession, the SDT determined that it was necessary to suspend him from practice as a solicitor for an indefinite period.


investigating solicitors Along with the SDT, the SRA has also stepped up its fight against solicitor involvement in fraud through new appointments to its investigative team and a concerted programme of investigation. 106 firms were investigated by the SRA last year, resulting in the closure of 22 firms, and the referral of 26 firms to the police. Whether these claims were a result of dishonesty or simply negligence, law firms need to take the steps necessary to protect themselves against this kind of activity, and to make sure that they are complying with all current anti-fraud regulations. A new online Foreign National search system is making this much easier, as it is now possible to scan a wide range of databases, covering more than 240 countries. Systems like these should form a key part


Insurers say that solicitors


have the worst claims experience of any profession: a 90% loss ratio.’ Another recent case involving a law firm


based in Newcastle was equally serious. The SDT ordered that one of the firm’s solicitors should be struck off the roll for misleading the Solicitors Regulation Authority during its investigations, ignoring the Law Society’s warnings relating to property fraud, acting in circumstances where the purpose had been designed to disguise the ownership of property to avoid his client’s liabilities and making misrepresentations to HMRC. The case, which was proved, involved


huge losses to clients and considerable damage to the reputation of the profession. As such, and to reflect his key role in all these matters, he was ordered to pay costs in excess of £100,000.


of an effective risk-management strategy, since they are essential for protecting the firm against any potential claims made by a lender. For example, a bank might claim that it was misled by information passed on by the law firm, and/or may assert that the firm should have provided it with more details of the client and/or transaction to help support its decision as to whether or not to provide funding. Not only are claims like these on the rise, but insurers regularly complain that solicitors faced with these situations have the worst claims experience of any profession, with a loss ratio of over 90 per cent in many cases, according to recent reports. This means that, for every pound in premiums they collect, they pay out 90p in claims, and that is before expenses and profit are factored in. PII premiums have therefore jumped


considerably as insurers seek to cushion themselves from potential mortgage fraud. Insurers are becoming increasingly interested in examining how well risk is managed before agreeing to engage with a law firm, and many firms are, in fact, leaving the market all together. An effective, comprehensive risk


management strategy – including regular ID checks on a global scale – needs to be introduced as a matter of urgency for all firms. Not only that, but senior partners need to buy into this commitment, and understand that this needs to be more than just a tick-box exercise.


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