The Solicitors Regulation Authority (SRA) giving solicitors positive permission to hold client money is one of the options it will consider as part of the review of conveyancing, it has emerged.
Executive director for policy Richard Collins has also expressed concern about mortgage lenders using solicitors as an insurance policy against something going wrong in a transaction.
Client account is under the microscope at the moment as a result of the SRA review, a Law Society investigation into whether it should be optional, and the Legal Services Board urging conveyancing regulators to explore alternatives to holding client money in a bid to tackle the risks of fraud.
Speaking at the Westminster Policy Forum seminar on the future of conveyancing and property transfer – held shortly before Christmas – Mr Collins noted that a number of overseas jurisdictions, such as France, run central client accounts, an idea being adopted by the Bar Council with its BARCO scheme.
But he said the SRA would look “incredibly carefully” at the issue because of the ramifications of changing the current position. “One of the by‐products of holding client money is that we see that solicitors still, to some extent, are seen as a good bet by the bank, because the holding of client money with the bank, to some extent, is used by the bank to maintain the relationship with the firm.”
He continued: “If we didn’t go so far as to require the setting up of a central account, there is certainly something we need to look at in terms of the holding of client money being seen as something that’s given as a positive permission to only some solicitors’ firms.”
Mr Collins said there were signs of lenders “seeking to make sure the solicitors are absolutely pinned down… so that if anything goes wrong in the transaction, it’s the solicitors’ professional indemnity insurance or the Compensation Fund that picks up the ticket”.
If this continues and it leads to a distortion in the market – “as those involved seek merely to use solicitors as a sort of insurance policy if something goes wrong and loading more and more obligations on the solicitor” – Mr Collins said the SRA may have to step in.
Highlighting the “massive strain” property claims put on both solicitors’ insurance and the Compensation Fund, he said early findings of the SRA review included that around a quarter of 98 firms surveyed for their experience of conveyancing work had received professional negligence claims in the last two years.
Also under the microscope are fraud – the SRA’s aim is to target the fraudsters “without negatively impacting on or damaging the much larger proportion of cases that go through properly” – and acting for lender and borrower. This is a “difficult” issue because although requiring separate representation would reduce some of the risks, there are also benefits from joint representation.
Mr Collins described the Law Society’s Conveyancing Quality Scheme as an “incredibly positive step” in trying to improve the general level of competence. “However, we’ve done quite a lot of work with insurers and lenders on this issue and both of those groups have identified concerns about competence [and] lack of adequate supervision.”
Legal Futures took his comments from an uncorrected transcript of the event.