Anthony Garcia-Deleito takes a long-term look at the Conveyancing Quality Scheme, arguing that it has the potential to deliver more than just a new kitemark for practitioners
While power over practice standards for firms of solicitors rests with the Solicitors Regulatory Authority (SRA), the Law Society remains the representative body for solicitors in England and Wales. By contrast, licensed conveyancers are regulated by the Society of Licensed Conveyancers (SLC).
The Law Society has decided to take the step of creating a hallmark of quality to try to provide a uniform and recognised standard for residential conveyancing practice. Some question why this is necessary given that practice standards are already recognised by other Law Society schemes such as the Lexcel hallmark, which has been in existence some while already, and being regulated by the SRA ought to count for something.
Ostensibly, the aim of the Conveyancing Quality Scheme (CQS) appears to be to achieve a membership standard that will provide greater comfort to all stakeholders in residential property matters, whether they are the regulator, lenders, insurers or consumers (as client or as borrower). The SLC plans to launch a similar scheme.
Member firms will have to demonstrate the integrity of their conveyancing staff and their head of conveyancing, who will be termed the senior responsible officer (SRO), will have to keep the compliance checks properly reviewed, including criminal records checks as staff come and go. Member firms will also have to demonstrate adherence to good practice management standards and adherence to the CQS protocol. The hope is to create a trusted community to deter and prevent fraud in order to drive up standards.
CQS is not a franchise. CQS is also more than just a kitemark, since it not only encourages systemic uniformity designed to streamline the conveyancing process but also creates a trusted community. By contrast, some firms collaborate under a referral network and a branded image, and QualitySolicitors might be one such example. Whether the firms within that referral network choose to be part of CQS will be a matter for each firm and whether this type of quasi-franchise referral-network will insist upon all of their members being part of CQS remains to be seen.
E-conveyancing and CQS
Ultimately, as standards are raised and made uniform, CQS could be seen as a stepping stone towards the uniformity of systems and a trusted community
which would be essential for any system of e-conveyancing to work. The whole impetus towards e-conveyancing has been shelved, notwithstanding the enormous sums of money spent by the previous government to set up the prototype systems with the Land Registry, but it is dormant rather than dead. The practical implementation of e-conveyancing had a number of weaknesses but mainly that the integrity of every authorised user on the network would have to be beyond doubt; the security of the e-conveyancing network between firms would have to be as close to unhackable as possible. Last but not least, the reconciliation of the entire chain of transactions in the chain matrix depended upon all legal representatives in the chain having access to the e-conveyancing
network. Otherwise, it would only take one paper-based non e-conveyancer in the middle of the property chain to slow down and scupper the whole notion of
an immediate electronic reconciliation of contracts and transfers on completion. A trusted community, following uniform standards, such as CQS is therefore the
obvious first step.
Impact on the industry
The great debate, even before CQS, centred upon lenders and their conveyancing panels. Without recognition from the mainstream lenders to conduct the lender’s mortgage business, a conveyancing practice cannot really function as a viable business. Traditionally, the householdname high street lenders trusted that conveyancing was conducted by a solicitor or licensed conveyancer, and, in either case, it was considered sufficient that each was operating in a regulated sector and overseen by their own professional body, which required them to carry professional indemnity insurance in the event of a failure. The lawyer would act for the borrower and lender on a purchase, largely without conflict of interest, because the common purpose was to ensure that a good and marketable title is obtained and the lender’s terms were standard and nonnegotiable anyway. Professional indemnity insurance provided a fallback position.
In principle, this has not changed but, over the years, the increasing threat of fraud, not just by third parties but from fraudulent professionals who have crossed
the line, has made the issue more sensitive, notwithstanding the continued existence of the professions’ compensatory schemes. Professional indemnity insurance became an increasingly expensive overhead especially for smaller practices which were perceived higher risk.
Institutional lenders started to create conveyancing panels drawn from the more well-established practices. In essence, the idea of creating a trusted community
was developed. Only those firms on the lender’s panel were trusted to receive the mortgage advances and to obtain and register the relevant security from the
borrower. This notion of trusted community then evolved, in more recent years, to the particular detriment of sole practitioners who, whether you consider fairly or unfairly, were perceived as being at greater risk of crossing the line into fraud and embezzlement. Many sole practitioners and small practices saw their membership of lenders’ panels discontinued, often without being given a good reason and without any prospect of reinstatement, appeal or reapplication for a year. Separately, the cost of their professional indemnity insurance sky-rocketed.
The trend by lenders to conduct reviews of their panel membership placed sole practitioners in an impossible position. Remonstrations have been made to the
lenders concerned on a fairly individual basis and seemed to fall upon deaf ears. Complaints have already been made to the Office of Fair Trading (OFT) and will continue to be made, claiming that lenders are in breach of competition law for abuse of a dominant position, or are otherwise behaving anti-competitively, but those arguments seem also to have foundered. A recent example was HSBC’s decision to cut its nationwide panel to just 43 firms for the entire country.
Should solicitors be part of CQS?
On 13 April 2012, it was reported that the OFT would not be investigating HSBC over this sudden reduction, when a sole practitioner claimed that the conduct of
HSBC was anti-competitive and restricted consumer choice. The OFT stated that if they were to intervene then it would be to review the whole market and not just one lender’s actions. The debate is not over. It is no longer just sole practitioners beginning to feel this pressure. Meanwhile, borrowers are being required to pay further costs to use their usual family solicitor or conveyancer who, if not on the lender’s panel, will have to report all their findings to the lender’s appointed panel lawyer to double check everything. This is arguably an unnecessary duplication.
The entire landscape for the provision of legal services is gradually changing following the Legal Services Act 2007 - alternative business structures (ABSs) and
multi-disciplinary practices (MDPs) with non-lawyers and new business structures, external equity investors and flotation of legal service companies are all possible for the first time in law, the full impact of which is yet to be seen. It is understandable that lenders will want to conduct their business only via trusted channels in this new legal landscape. The potential for supermarkets to enter the world of legal services, especially for residential conveyancing and will writing, to complement their other financial and insurance services is clear.
Firms that do not have the recognition of the major lenders are increasingly alienated in this new landscape and their businesses either folded or merged with
other practices to create larger entities, in the hope of receiving better recognition by lenders’ panels and economy of scale. The risk analysis, from a lender or professional indemnity insurer’s perspective, was the perception that a firm with a larger partnership or membership presented less of a risk in that, if there was one bad apple, then the other partners would still be there to take responsibility in a way that is not possible for a sole practitioner.
An understanding of the foregoing is essential to decide whether it is sensible to be part of CQS. Initially, one can be quick to criticise the additional cost of the further bureaucracy of compliance systems in terms of its detailed and ongoing requirements. However, one could equally say that CQS offers the potential to reaffirm and set the standard in establishing the trusted community which lenders, professional indemnity insurers and clients will look for.
If CQS proves workable, then participation becomes increasingly essential, because of the way in which advantages can be maintained by the solicitors’ profession in a changing legal landscape. The additional compliance may be time-consuming and costly, but there may be savings to be had in the insurance premium paid for professional indemnity insurance by firms that can demonstrate the greater degree of systematic competency. Participation in CQS might also help pave the way for the uniformity of systems required for e-conveyancing to work and could even rekindle the confidence of the lenders and professional indemnity insurers that is so badly needed to be recaptured on behalf of sole practitioners or small two or three-partner practices to sustain consumer choice.
Lenders’ attitudes as to who will be allowed to participate in their panels, and the part that CQS has to play in the context of the changing landscape for provision of legal services, will be part of an interesting and significant power play between market forces in the immediate years ahead.
This article was first published by Solicitors Journal on 31 May 2012, and is reproduced by kind permission.