SPECIAL FEATURE: The Risk Agenda – Council for Licensed Conveyancers

SPECIAL FEATURE: Sheila Kumar, Chief Executive of the Council for Licensed Conveyancers (CLC), has written an article on the Risk Agenda.

Conveyancers have always had a huge responsibility in looking after their clients – and their clients’ money – and that’s never been truer than today.

The sector remains high-risk for money laundering and fraudulent activity such as payment diversion fraud, which has seen prospective homeowners scammed out of hundreds of thousands of pounds.

Throw in the rising threat of cyber-attacks and the government sanctions imposed following the Ukrainian conflict and it’s fair to say that ensuring transactions are safe and secure has never been more challenging.

That’s why, for the second year running, we’ve published our Risk Agenda to bring together all the big issues that conveyancers need to watch out for. The areas we’ve focused on are those that came up most frequently during our regular monitoring and inspection work over the previous 12 months.

As well as updated advice on perennial problems such as anti-money laundering (AML) and professional indemnity insurance (PII), new for 2022 are the aforementioned sanctions, IT resilience and recovery, complaints and the cost of practising, and closing your practice.

Prevention is the cornerstone of our regulatory approach, and we believe that by working closely with our regulated community, we can identify many potential issues before they become something more.

Rest assured that we will step in and take corrective or disciplinary action if necessary, but tools like the Risk Agenda help us to make sure that the vast majority of our practices are compliant and remain so.

New for 2022:

Sanctions

Russia’s invasion of Ukraine has put sanctions near the top of the risk list for conveyancers given the influx of Russian money into the UK property market over the years.

Firms must ensure they are familiar with the sanctions regime and the UK sanctions list, as failure to adhere to the strict rules could result in prosecution or a large public fine.

This is not an issue that will go away anytime soon and while the current focus is on Russia and Belarus, the regime has a global reach.

IT resilience and recovery

Following one very high-profile cyber incident in the CLC community last year, firms are being warned to prepare now for “when, not if” the same thing happens to them.

Earlier this year, the Information Commissioner’s Office fined a large law firm £98,000 for known issues that led to a ransomware attack.

It is not just the incident itself but the recovery from it that has the potential to cause huge disruption.

Your IT department or provider should be continually monitoring the range of data protection options and counter-measures available, as well as regularly testing systems to detect any vulnerabilities, and training staff.

Complaints and the cost of practising

We recently changed the way we calculate the cost of the Legal Ombudsman (LeO) so that firms which generate the most complaints will now pay more.

Previously included in practice fees, the LeO levy has now been separated out and affected firms will cover 30% of our bill, rising to 80% over the next four years.

We hope this will encourage firms and individuals to deal with complaints in a more effective and timely manner.

Closing your practice

The hardening of the market for PII has unfortunately led to some firms closing down and not always in an orderly manner.

We generally expect a minimum of six weeks’ notice that a firm is shutting down and you should also notify us if you are at risk of financial distress.

Closing practices must not take on any new work and ensure they retain sufficient staff to complete existing matters or arrange transfer of files to another firm.

Professional obligations do not cease at the closure of a firm, as, for example, past files need to be retained safely for the usual periods. Arrangements need to be made for such ongoing obligations too.

Recurring risks:

PII

Insurers continue to be under pressure to improve profitability and that has caused a hardening of the PII market for conveyancers in particular.

Following a public consultation, we will be introducing some changes to the renewal process from next year, which will hopefully make it easier for all concerned.

These include requiring our regulated practices to submit at least one application ahead of the renewal deadline, with insurers obliged to reply no later than one month before. There will also be an automatic 90-day extension of cover in the event that practices are unable to renew.

AML

Common issues uncovered during our inspections included firms failing to provide AML staff training records and to ensure that their risk assessments were up to date.

You should be familiar with your duties according to the Anti-Money Laundering (AML) and Combatting Terrorist Financing Code and the Money Laundering Regulations 2017.

The increasing use of digital ID verification can be a fast, cost-effective and reliable way to verify an individual’s identity and reduce money laundering and compliance risks.

Questions about payment by cryptocurrencies such as Bitcoin are also becoming more frequent.

Ultimately, the AML approach to cryptocurrencies should be similar to that for cash purchases, including enhanced due diligence due to the high-risk nature of the transactions.

Aged balances

Our inspections show that many firms have aged balances on their books – monies still on the client ledger 12 months after the conclusion of a matter.

The amounts involved can quickly add up and practices need to take active steps to ensure that all client monies are properly paid to the rightful recipient at the earliest opportunity.

Transparency and informed choice

All CLC-regulated firms are now required to prominently display details about price and service on their website.

This drive to make this information more accessible to consumers, giving them greater choice, is supported by the Legal Services Board and Competition and Markets Authority among others. The government is also monitoring progress.

The above is a snapshot of a wide range of issues, also including conflicts of interests, file storage and business continuity planning, which are examined in more detail in our Risk Agenda here.