The Solicitors Regulation Authority (SRA) could “mystery shop” conveyancing firms to check whether their costs information and publicity about charges are misleading, it has revealed.
At the same time, the Legal Services Board (LSB) announced that it is to consider a major review of conveyancing in the next year in the light of the claims against solicitors and rising levels of fraud.
The SRA has published a draft supervision and enforcement strategy setting out how it intends to engage with firms undertaking conveyancing work from October. It has already announced plans for a major thematic review of the regulation of conveyancing and the holding of client money during 2011.
The strategy focuses on five particular areas of concern: conflicts of interests, referral arrangements, costs information (including publicity about fees), financial stability, and property-related fraud and money laundering.
The strategy says: “A likely outcome of our [ongoing supervision] pilot and the wider review of conveyancing is that the SRA will develop case selection criteria for enforcement in cases arising from conveyancing to address particular risks inherent in that work, within our overall outcomes-focused approach.”
The SRA’s new risk-based approach uses a variety of tools, such as desk-based reviews, on-site visits, mystery shopping and thematic visits. The strategy outlines how these will be used in relation to each area of risk. As well as mystery shopping over fees, the strategy says the SRA could place “increased information requirements on firms assessed as being of greater risk to our regulatory objectives due to the nature or number of their referral arrangements”.
Samantha Barrass, the SRA’s executive director of supervision, risk and standards said: “There has been a substantial increase in payments made by professional indemnity insurance and the compensation fund in the last few years as a result of poor quality and dishonesty in conveyancing transactions.
“We have seen a direct correlation between the downturn in the economy and the housing market and the increase in claims. These statistics highlight the need for us to continue to target our regulatory resources on conveyancing – both to assist firms in managing their own risks and compliance and to identify and prevent dishonest behaviour within a small number of firms.
“Our aim is primarily to ensure that firms take seriously the risks in this area and establish good compliance and risk management systems so as to demonstrate an effective degree of internal control.”
The LSB review is outlined in its newly published 2011/12 business plan, which has not changed much from the .
It says “a number of conditions suggest strongly that a review of conveyancing is warranted”, particularly the number of claims against the SRA’s “various client protection mechanisms”, alongside anecdotal evidence of rising property fraud.
“It is as yet unclear whether, and if so where, consumer detriment is occurring. Alongside partners, we need to understand the extent to which legal services regulation might be an appropriate vehicle through which to tackle harm and, if so, whether change is needed in either the regulatory framework and/or its application.”
The LSB will issue a call for evidence to establish the need and likely scope of a detailed review in the summer.
The business plan also confirms that there will not be a clear direction on whether will-writing will become a reserved activity until next year. The consumer panel’s advice is expected in the summer, and in the last quarter of 2011 there could be a section 24 investigation into making will-writing a reserved legal activity. A consultation on the results of this would be in the first quarter of 2012.
Alongside this will be work on the wider regulatory framework so as to develop “a rational and intellectually coherent approach to assessing whether and where regulation is required”.
The plan outlines a focus on quality assurance and whether “additional regulatory requirements are needed post-qualification to tackle risk of consumer detriment, particularly in the context of increasing specialisation”.
The LSB will produce a ‘tool-kit’ to identify the regulatory tools and interventions that could be used to ensure minimum quality standards, as part of which it will ask the consumer panel to conduct “further research on the characteristics of robust quality schemes”.