CLC highlights compliance risks facing licensed conveyancers


Kumar: Reputation is hard won and easily lost

Money laundering, buyer-funded developments and acting for both sides are among the risks highlighted in the Council for Licensed Conveyancers’ (CLC) first Compliance Risk Agenda.

The regulator is also looking at ways of addressing late quotes by professional indemnity insurers.

The CLC said the document detailed the issues its staff have encountered during their monitoring and inspection work.

They have discovered “different interpretations” of what practices have to do, and the evidence they need to obtain, to ensure they are complying with their duty to check the source of a client’s funds and wealth.

The agenda said: “We would expect practices to investigate and satisfy themselves that the clients’ reported income and wealth aligns with the documentation and information the practice has been provided with. For example, does their income and wealth correlate with their job role?

“Information should be verified with evidence, rather than simply taking clients’ assertions. The extent of the evidence required to verify the source of the funds or wealth will vary from case to case and will also depend on your assessment of risk in the circumstances.

“This is not a tick-box or cursory exercise and ongoing monitoring of risk is required throughout the duration of transactions.”

Buyer-funded developments, also known as fractional developments – where large deposits are used to fund the purchase and build – are proving a “major red flag to insurers”, while new-build developments are a danger in light of large losses experienced by insurers through repetition of a single error across multiple units.

Insurers providing quotes late in the day – giving firms little room for manoeuvre – was identified as a problem and the CLC said it had raised the possibility of a more comprehensive proposal form and service levels for responding to proposals.

“Most significantly, perhaps, we are minded to move to a timetable that requires practices to obtain cover in advance of the inception date.

“This will allow practices that have not been able to secure cover to take the necessary steps to wind up their businesses in an orderly manner and allow the CLC to manage client risk more easily.”

CLC practices can act for both sides in a property transaction subject to the parties’ informed written consent.

The rules specify that each party must at all times be represented by different authorised person operating as though they were members of different firms.

The agenda said: “There is a heightened risk of conflict of interest in such situations and so there need to be people of appropriate level of seniority handling the matters to ensure they recognise any conflict that may arise.

“However, we have seen examples in the last year of unauthorised individuals with inadequate supervision handling such transactions. This is not acceptable. If the nature of a practice’s structure means it cannot meet the requirements for acting for both sides in a transaction, then they must not take on the second client.”

Firms also need to ensure there is adequate physical separation between the authorised persons, while best practice is to ensure that case management systems have controls in place which prevent individuals accessing the other side’s file.

Other issues covered by the risk agenda are aged balances, file storage after closure, transparency and informed choice, and business continuity planning.

CLC chief executive Sheila Kumar said: “We regulate a profession that constantly demonstrates very high levels of compliance. We should all be proud of the effort that goes into ensuring that the public has full trust in licensed conveyancers. This reputation is hard won and, of course, easily lost.

“Naturally, nothing is perfect, and the aim of the risk agenda is to highlight the issues that do trip up some practitioners. None of them are widespread or systemic but even isolated failures can have a significant impact on perceptions of the profession and stakeholders’ approach to dealing with CLC-regulated firms.

“Running a legal practice involves juggling many balls and this document may help our community identify one or two that have inadvertently fallen by the wayside. We will also be taking these findings into account generally in our regulatory processes.”

The CLC intends to update the risk agenda on an annual basis.




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