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| YES | NO | Undecided | ||||||||
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PROPOSAL 1
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(97.1%) |
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(2.6%) |
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(0.4%) | ||||
| PROPOSAL 2 |
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(93.8%) |
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(5.9%) |
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(0.4%) | ||||
| PROPOSAL 3 |
 |
(67.6%) |
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(26.1%) |
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(6.3%) | ||||
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CML Compliance Alert – for urgent attention of residential conveyancers
The Council of the Scottish Law Agents Society (“SLAS”) has asked that I contact solicitors involved in residential conveyancing across Scotland
(a) to alert you to a recent Disciplinary decision that will impact on every firm’s CML Compliance procedures, and
(b) to canvas views on what, if any, policy changes solicitors would like the Law Society of Scotland (“LSS”) to implement in light of this and other recent developments in the residential conveyancing market.
SLAS has been representing the interests of solicitors throughout Scotland since it was established by Royal Charter in 1884. It was one of the prime movers in establishing the LSS in 1949 who then took over the lead role of representing the interest of solicitors in Scotland.
SLAS’s role is to highlight and stimulate debate on issues that are of concern to the profession and where a significant percentage of the profession have a view that is contrary to the policy adopted by the LSS or any other organisation that solicitors deal with to raise these views. We aim to engage positively with the LSS, ROS, SLCC, SLAB, CML etc and to give voice to your concerns.
This case highlights a number of issues and has caused many practitioners to reflect on whether we should continue to act for both Borrower and Lender in residential conveyancing. The following are some of the points raised by various colleagues I have spoken with. The SLAS Council would welcome hearing your thoughts which will help shape any proposal we make to the LSS.
This email has been emailed to only one or two people in the about half of the practice units in Scotland Please copy this email to those in your firm or colleagues in other firms who are involved in Residential Conveyancing. The more feedback we can gather from the profession the better informed the LSS will be on the views of its members.
If you email any feedback to me I will collate the responses and present them to Council at our next meeting on 26th of this month. Unless you instruct me to the contrary I will, by default, keep the source of any point anonymous.
The Council of the Scottish Law Agents Society (“SLAS”) has asked that I contact solicitors involved in residential conveyancing across Scotland
(a) to alert you to a recent Disciplinary decision that will impact on every firm’s CML Compliance procedures, and
(b) to canvas views on what, if any, policy changes solicitors would like the Law Society of Scotland (“LSS”) to implement in light of this and other recent developments in the residential conveyancing market.
SLAS has been representing the interests of solicitors throughout Scotland since it was established by Royal Charter in 1884. It was one of the prime movers in establishing the LSS in 1949 who then took over the lead role of representing the interest of solicitors in Scotland.
SLAS’s role is to highlight and stimulate debate on issues that are of concern to the profession and where a significant percentage of the profession have a view that is contrary to the policy adopted by the LSS or any other organisation that solicitors deal with to raise these views. We aim to engage positively with the LSS, ROS, SLCC, SLAB, CML etc and to give voice to your concerns.
This case highlights a number of issues and has caused many practitioners to reflect on whether we should continue to act for both Borrower and Lender in residential conveyancing. The following are some of the points raised by various colleagues I have spoken with. The SLAS Council would welcome hearing your thoughts which will help shape any proposal we make to the LSS.
This email has been emailed to only one or two people in the about half of the practice units in Scotland Please copy this email to those in your firm or colleagues in other firms who are involved in Residential Conveyancing. The more feedback we can gather from the profession the better informed the LSS will be on the views of its members.
If you email any feedback to me I will collate the responses and present them to Council at our next meeting on 26th of this month. Unless you instruct me to the contrary I will, by default, keep the source of any point anonymous.
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Were you aware that if your residential conveyancing Team breach any of the CML Handbook rules you risk prosecution by the LSS whether or not the Lender has complained or has suffered loss?
Narrative See Mr Brown’s submission at page 12. If you find yourself agreeing that the Respondant was entitled to exercise her professional judgement in deciding whether or not to report a matter to the lender, you are at risk and need to review your Team’s CML procedures as a matter of urgency.
This judgement makes it crystal clear that there is, and never was, any room for exercising professional discretion on whether or not to report a breach. Whether a failure to report will be serious enough to result in a prosecution being raised is a matter of judgement for the LSS Compliance Team who carries out your inspection. However, any failure to report, irrespective of how trivial the breach, may result in a claim by the Lender if they suffer loss on the mortgage. Responses: This is not the first case where a breach of the CML Handbook has been determined to be a breach - see Pervez case of 4 years ago. Here the issue was failure to disclose incentives but there are other cases of failure to register securities which is seen as a breach of CML Handbook as well as just plain vanilla misconduct. In Dunlop there is mitigation - two letters sent to lenders on 18th Sept - suggests to me an Accounts Rules Inspection and those were actions as a result. LSS can investigate ex propriu motu when it finds evidence of failures to comply with terms of the whole rule book which it stumbles across on inspection. Again with the third case there is disclosure later but when it was too late for the lender to back out. There is no doubt that there were breaches of the Handbook - lenders perceive back to back transactions are potentially fraudulent. It seems inconceivable that the agent was unaware of the back to back transactions at settlement even if not aware of the problem at the time of sending in the certificate of title. So she must have realised she was running some sort of risk in not reporting prior to settlement. The decision by the LSS is to prosecute. The SSDT, which is 50% lay members, decides whether to uphold the prosecution or not. |
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| An another example of LSS Financial Compliance team treating the CML Handbook as gospel and according it a status that it was never intended to have. |
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| I suppose LSS will argue public interest as e.g. breach of the 6 month rule usually indicates a fraud though not by any means always!! |
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| A breach of the CML Handbook is being treated by the Compliance Team as Professional Misconduct even where there has been no complaint, claim or loss or the Lender. If the Compliance Team pursue it at all should it not be as a Service Complaint? |
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| I firmly believe many Solicitors up and down the country have done in recent years particularly at a time, and I am thinking of the years pre 2009/2010, when lenders were voracious in their appetite to lend and quite simply couldn’t have given two hoots about whether or not properties had only been purchased weeks or even days before. It isn’t the first time that I have contacted a local branch of a lender to point out the fact that the loan instructions had a “purchase price” different to that which the clients were paying only to be told that the Mortgage Advisor at the branch was aware of that and that the “purchase price” in the Offer was the value. |
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| Find a tall building! |
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| Fancy joining me and a bunch of former solicitor for morning mojitos on the park benches? |
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| Thanks for that and for that judgement. Might as well just pack up now and go home!! |
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| Thank you for your e-mail of Friday 13th January regarding the above. The date seems to be appropriate having regard to the ominous contents. |
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| Our firm were not aware that a breach of the CML Handbook Rules risked prosecution by the Law Society, irrespective of any complaint or loss from or by the Lender. |
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| I refer to your recent email and did not know that we risk prosecution by the LSS whether or not the Lender has complained or suffered loss. |
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| I was not aware until very recent discussions that if any member of our team breach any of the CML rules, we are at risk of prosecution. |
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| In connection with the topics which you raised in your very informative bulletin, I think it’s probably fair to say that until recently I don’t think very many of us were aware that the risks of breaching the CML Handbook Rules were as serious as they are. Lenders themselves clearly have very short memories in relation to their willingness to lend and their completely cavalier attitude which existed until the last couple of years or so. As a firm we have now spent a great deal of time, effort and money in ensuring that we are fully compliant with all aspects of the Accounts Rules, Money Laundering Regulations and the CML Handbook. However, instances still arise particularly in relation to the CML Handbook. I have a case ongoing at present where [a Top 20 firm]. Their client had only bought the property in [recently] and I explained to the Solicitor there that we could not settle without intimating this to the lenders. The Solicitor at [T20 firm] expressed surprise that we had to do so as he was not aware himself that this was a requirement. It seems therefore that it is not just us small firms who were completely unaware of the requirement to adhere to the rules but the large firms also. |
| Were you aware that the failure to report any breach of the CML Handbook can result in a claim against you by the Lender? Narrative
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| Yes. Marsh advised us last year that immediately a loss is incurred on a repossession lenders scour the purchase transaction for evidence of a breach of the rules. If there is one, no matter how trivial, they will lodge a claim with Marsh and it will be paid out. Lenders are hard-nosed commercial people with an eye to the main chance. They have identified our Master Policy cover as a way of underwriting their commercial losses. Given the terms of the CML Rules, they know they will find some small breach and that will enable them to sue us for any loss they may suffer. One could admire their commercial acumen if we were not the ones being shafted by them! |
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| Thank you very much for your email. The view of the three solicitors in this firm is that while we were aware that a lender could claim if we ignored their instructions, we were not aware that the claim was not restricted to consequential loss. |
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| Thank you for sending me the compliance alert. I was aware that a breach of the rules in the CML Handbook could result in a claim, but I did not realise that the claim was for all losses irrespective of any causal connection with the breach. |
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| Our firm were aware that a breach of the CML Handbook could possibly result in a claim by the Lender. |
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| Similarly I was not aware that failure to report any breach can result in a claim by the lender. |
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Would the profession save time and money if the Insurers/the LSS were to take a test case against one of these claims by the Lenders rather than individual firms suffering the worry, Excess payments and increased annual Premiums that any claim brings?
Narrative As any principal in any firm will confirm the PI insurance provided by our Master Policy cover is more akin to a short term loan than general insurance such as a car or buildings and content policy. With car insurance if you have an accident you will have an Excess to pay on each claim and your premiums will rise but the total cost to you will be a very small percentage of the amount of the claim. This is not the case with a claim on the Master Policy. We are not privy to the detail but a significant percentage of each claim is recovered from the firm by way of Excess and increase of annual premium over the next 5 years. The Excess paid by each partner/director on each claim will be £3,000 or £6,000. The amount is capped for firms with more than 15 partners/directors at the first £45,000 or £90,000 of each claim. A significant (but unknown) amount of any claim remaining (after payment of the Excess) is then recovered from the firm over the next 5 years through an increase in their annual PI premium. If we estimate the average claim by Lenders to be £45,000 a 2 partner firm who referred this to Marsh for settlement could end up paying an Excess of £12,000 plus (say) £20,000 in additional PI premiums over the next 5 years. Making a total of £32,000 on a £45,000 claim. With Marsh warning of a significant rise in the number of these claims would you agree that it would be in the interests of the profession if the Insurers/LSS were to take a test case to establish whether a failure to disclose information to the Lenders will entitle the Lender to recover any losses they might suffer on a mortgage? |
Responses: |
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| I do think that it would save time and money if the Law Society would proceed with a test case but I think that the LSS do not act in our interests in these matters. |
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| In England they have no Master Policy and all firms are worse off because of this. If lenders are our most persistent claimants they are causing our premiums to rise and could lead to Master Policy cover being withdrawn. |
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| If this information is correct is it not justification on its own for removing exception 2.1.4(f) and replacing it with a provision that the borrower and lender must be separately represented? |
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| Option 3 looks good! |
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| We do not see any particular merit in a test case against a Lenders’ claim being raised – we suspect that any such case would take a considerable time to reach any resolution, and I would imagine would incur substantial expense for the profession. |
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| I do believe that it would be in the interests of the profession as a whole if the Professional Indemnity Insurers and / or The Law Society of Scotland were to the take a test case to establish whether a failure to disclose information to the lenders would entitle the lender to recover any losses which they might suffer in a mortgage. The way things are going there will be a great many firms who will simply end up going out of business due to claims which may be instigated resulting in increased premiums over the next five years. |
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| In the light of this development, we would support an action against a lender in an attempt to restrict the loss to consequential losses only. |
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| We would support the bringing of a test case as it is outrageous that any other loss should be compensated. |
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| My firm would be happy to make a contribution to the fighting fund as, I am sure, would many others who have been at the wrong end of a claim by lenders on exactly this basis. |
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| Yes, I agree that it would be in the interests of us all for a test case to be taken. |
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Would you urge the LSS to reverse its recent decision and prohibit solicitors from acting for both Borrower and Lender?
Narrative You may take the view that the recent move by HSBC to restrict their panel in Scotland to 4 firms and to launch a keenly priced conveyacing package is a model that will be followed by other Lenders. Combine this with the on-going policy of Lenders to remove firms (particularly smaller and non-IT literate firms) from their conveyancing panels and you might take the view that it would be in the best interest of both the profession and our clients if the LSS re-asserted some influence over the situation by banning solicitors from acting for both Lender and Borrower. Responses: |
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| When you stand back and look afresh at the current solicitor/lender relationship it is blindingly obvious why the lenders are against separate representation. We do the work to their specification for nothing. If their poor lending decisions or a change in the borrowers circumstances cause a loss they know there is a good chance that they can recover their loss from us. |
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| Here are a few reasons for not acting for both borrower and lender: 1. No need to consult and comply with the CML handbook ever again! 2. No need to give the ridiculous warranties demanded in the lender's Report on Title. 3. No need to spend huge amounts of (unpaid) time covering for the lender's ineptitude. 4. How many of us adequately charge for the work done in connection with a home loan or a discharge? The answer is none of us. In effect we have been subsidising both the lender and the borrower for years. |
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| Recent additions to, and interpretations of, the CML Handbook have resulted in a far greater duty of care being owed by solicitors to their lender client than many solicitors realise, and which is in many respects greater than the duty of care owed to the borrower client. That imbalance, of itself, is a conflict; a conflict which, for the sake of the whole profession and the integrity of the Master Policy and Guarantee Fund, the Regulatory Committee should now seek to outlaw by prohibiting dual representation. As you know, the present view of the Professional Practice Committee is that no change is required. There is a view that for the Society to seek a change would be to invite anti-consumer attacks. There are some at Drumsheugh who privately accept that there is movement towards separate representation (witness e.g. HSBC's recent pronouncement) and that in two years or so there may be a completely different landscape so far as separate representation is concerned. Even as we speak, other lenders are engaging in 'active panel management' at the requirement of the FSA. This effectively means culling their panels. The arbitrary yardsticks thus far deployed include: low-volume of transactions; business model (no sole practitioners); dormancy; failure to pay a 'panel arrangement' fee. All of these disproportionately affect the smaller practitioner. There are, I am told, over 600 (and increasing) sole practitioners on the Society's roll which accounts for over half the number of registered firms. If these firms are excluded from lenders panels, a large percentage of conveyancing business that might otherwise have gone to them will go to their larger competitors. Even in these straitened times, conveyancing is still the bread-and-butter (probably 'bread-and-spread') of most small firms and if that is lost, those businesses will inevitably fold. If the Society does nothing and simply allows lenders to dictate the speed and direction of travel, the legal landscape will have changed in two years time; the Society will be impoverished by the loss of many small firms. |
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| Following this case it is becoming ever more apparent that separate representation is in solicitors’ interests. |
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| It seems to me that this is evidence that the only solution for this problem is the answer "no" to question 5. Any other solution perpetuates the existing problem, does not properly protect the lenders, and gives an unfair and unacceptable advantage to remaining panel members. The exception to the normal conflict of interest rule is now shown to be a mistake. |
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| With Santander now asking us to pay to be on their panel it is only a matter of time before they all follow suite. I believe it is a total conflict of interest to act for a lender and the client and we need to compel the lenders to pay a solicitor to represent them by refusing to act for both parties. |
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| I have been thinking on your suggested solution to the objection from some of the profession that "... it will make no difference if we have separate representation because the Lender's solicitors will insist we sign a Report on Title that imposes the current obligations and liabilities" Your response was that if we remove the conflict it gives us a freedom to respond in ways that are currently not open to us and so we have not considered. How about the LSS set out a Classic Report on Title for Residential conveyancing designed to protect the interests of its members. This is done without consultation with the Lenders but on the basis of what is fair and reasonable to all parties. The LSS then make it a Professional Misconduct issue if the solicitor departs from the Classic Report on Title. The Master Policy imposes double deductibles if the non-classic ROT is used, in same way as they do for Letters of Obligation. It is written into the Classic ROT that the purchaser's solicitor will have no liability to the Lender if the property is repossessed and a loss sustained unless the solicitor was part of a fraudulent scheme. Any breach of the Classic Conditions will be raised prior to settlement of the transaction, if any matter is not raised it will be deemed to have been accepted by the Lender's solicitor. This Collective approach may help convince those who are concerned about their fee income that there can be life after Dual Representation is barred. |
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| I have long felt it the case that The Law Society of Scotland should reverse its decision on the conflict of interest between borrower and lender. There is surely a clear conflict in acting for borrower and lender. The recent announcement made by HSBC to restrict their Panel in Scotland to four firms begs the question “whose interests are going to be protected more – client or lender”. I do not believe the public want that to happen and that the public are quite happy to use their own Solicitor. Indeed looking at the on-line comments in relation to the HSBC issue, the majority of people take the view that HSBC’s actions are ill thought and ill-conceived. However, with the Society wanting to ensure that Solicitors are whiter than white it should really be the case that we act for our clients and thus remove any risk from the Master Policy in acting for lenders. Firms who act for lenders particularly if there is a small panel as in the HSBC case should clearly not be covered by the Master Policy and should have to arrange their own separate insurance in my view. |
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| I think the time has come to debate separate representation for buyer and lender. I think that is the logical conclusion given the rise in claims and the hidden costs to us all of conveyancing for which we, of course, do not charge. I appreciate some may baulk at this and fear losing business but the truth is there is much less business of that kind and it is actually a lot less profitable at the end of the day than we have fondly imagined given the litigiosity of the lenders in this brave new world! |
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| I suspect the L.S. should be the vehicle for driving this forward. It will probably need a good shove however and SLAS should in my view be in the vanguard in promoting discussion. |
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| I think that it is imperative that the LSS reverse its decision and prohibits solicitors from acting for both lender and purchaser. |
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| Our firm would urge the Law Society to prohibit solicitors from acting for both Borrower and Lender. |
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| Accordingly, as a way forward, our firm would like to see the Law Society reconsidering the position with regards solicitors acting for both Borrower and Lender, and we feel that a prohibition in residential transactions, as with commercial security transactions, would be beneficial to both the profession and to clients. We are concerned that, if no further action is taken, then more and more residential conveyancing will drift towards a small number of Panel firms, more than likely based in the central belt, and we feel this clearly is not to the interest of clients and non-Panel firms. |
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| I have circulated your email to the conveyancers in the firm and I hope that some will respond – but one never knows. Personally I think the time has arrived (and did some time ago) to say we cannot act on both sides of any transaction whether for buyer and seller or for lender and borrower. I would stress however that if that is to be the case and lenders follow HSBC then it has to be on the basis that they appoint properly qualified people to act. Far too much time is taken up with firms who act for lenders using not properly qualified paralegals to do the work who frankly do not know what they are doing. A properly qualified person need not be a solicitor but they have to have a proper knowledge of the law and the relevant procedures otherwise I think the issues will remain and the lenders will simply be chasing the handful of firms who act for them and who did not ask the right questions – cynical moi? I will try to address your questions because I think it is really important that the LSS get involved in this and represent our interests! |
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| One benefit of not acting for the Lender is that we will not have to worry about falling out with them and will be able to tell our client (their borrower) to complain to the FSA if they are not satisfied with their, often, abysmal lending service. |
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| We would all support a change in the rules of conflict of interest which means that different solicitors must act for the lender and the purchaser, unless the matter in question is simply a discharge or restriction of an existing security. |
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| We have always considered that it is far too dangerous for solicitors to act for both purchaser and lender, unless the question is simply a restriction or discharge of an existing security. The same applies to re-mortgages. It would have a beneficial effect on the market if solicitors could not act for both parties and introduce choice in to the market place. |
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| Give solicitors back their independence so that we are free to assert our clients rights against the 4 lenders who dominate the property market in Scotland. Currently, how many firms will have a go at a lender who has treated a client unfairly? Does the profession assert the rights of borrowers/investors who have been treated unfairly as forcibly as we should or are we unduly influenced by the loss of business from the lender if we are perceived as aggressively pursuing our client's claim. How many of us have sued/help draft a complaint against a lender for utter incompetence at administering a loan that caused a transaction to be delayed/fall through? How many of us have prevented this situation arising by doing fire fighting (unpaid) on behalf of the lender? Restoring solicitors’ independence would provide consumers with an advocate in the face of increasingly powerful lending institutions. |
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Alternatively, would you vote to maintain the current exception in the conflict of interest rules that permits firms to act for both Borrower and Lender?
Narrative Whilst this case highlights Regulatory creep it does not create a new offence. This issue was highlighted by the LSS in issue 1 of the LSS Financial Compliance Update dated June 2010, albeit that the focus of that update was mortgage fraud. You have now tightened your procedures so that your Team is operating within the existing Regulatory framework. If other firms cannot exercise the same level of internal management they can choose not to withdraw from the residential conveyancing market. Responses: |
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| Our firm would prefer if solicitors were prohibited from acting for both Borrower and Lender, and so we would not vote to maintain the current exception in the Conflict of Interest Rules. |
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| 4 and 5. I do not think that solicitors should be prohibited from acting for borrower and lender. My reason for this is fear that our conveyancing fees would fall dramatically if this did take place. |
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| I take on board that in these difficult financial times we have to consider whether we can risk losing the income generated from residential conveyancing. However, clients will not simply stop buying properties and will discover, as many have also already discovered, that using the lender’s Panel Solicitor can sometimes be a whole lot of hassle for a small financial gain. |
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Would you like to see the LSS re-consider its policy on enforcement of the CML Handbook?
Narrative The retrospective nature of enforcement is a particular concern. Despite the best efforts of Caroline Flannigan, a former LSS President, and SLAS a motion was passed at the AGM/SGM last which explicitly made a breach of the CML Handbook a disciplinary offence. This led to an amendment to the Accounts Rules at 6.5.1 (c) by adding the phrase "including complying with lender instructions where the lender is a client". The present case was raised before the amendment to the Accounts Rules and related to events that took place in 2008. Issue 1 of the LSS Financial Compliance Update was issued in June 2010 and even then the focus of that update was on preventing mortgage fraud not a clear direction that any breach of the CML Handbook would be treated as a disciplinary matter. Before the new Consolidated Rules came into effect at the end of last year many experienced practitioners may have taken the view not to report a breach of one of the CML Handbook to a Lender on the basis that it was entirely innocent and would not adversely effect the Lender’s interest. Had it been made clear to practitioners that exercising their professional judgement in this way could result in them being prosecuted by the LSS all breaches would have been reported. Should the LSS advise members of the Guidance issued to their Compliance Teams? Does this Guidance restrict reportable offences to the Big Six and failure/delay in registering title/Standard Security? Is there a cut off date before which failure to comply with the Big Six is not reportable? Should the LSS follow the lead of the government in Eire and issue an amnesty? We would be interested in hearing your thoughts. Our colleagues in the LDU advise that while consulting the Professional Practice unit at the LSS is something we should all do before the event, when we need guidance on which path to follow. However, the very strong advice from LDU is that you should definitely not seek advice from the LSS after the event where you are fairly sure you have breached the rules. If you find yourself in that position you may be interested in the new SLAS Confidential Helpline. SLAS are in the process of setting up a Confidential Helpline staffed by experienced practitioners on a voluntary basis to assist colleagues who find themselves in this position. Responses: |
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| As the Cashroom Partner in a large firm I am horrified to discover that my neck will be on the line if someone in my firm’s Res Conveyancing Dept does not comply with the CML Handbook. Thank you for bringing this to my attention. I will raise this at our next Management Meeting and I am confident you will be able to count on our support. |
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| From John Scott, Professional Practice Unit at LSS - You may be aware of the Professional Support Protocol, which is available on our website at this link:- http://www.lawscot.org.uk/members/member-services/professional-practice This Protocol provides as follows:- “In order to deliver the highest level of support to members there is a requirement that confidentiality is preserved so that, with two exceptions, members can obtain advice without fear of disciplinary consequences. The exceptions are where the solicitor making the inquiry states that he/she has or may have dealt dishonestly with client’s money or where there is either knowledge or suspicion that a solicitor (rather then their client) is engaged in money laundering.” And as follows:- “Inquiries shall not trigger an inspection, audit, investigation etc of the inquirer’s firm.” In the light of that Protocol, members should not hesitate to contact me or one of my colleagues in the Professional Practice Department for advice at any stage. All four solicitors in the department had extensive experience in private practice before joining the Society, which gives us a degree of empathy when dealing with enquiries. |
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| Whilst we would certainly not wish to see firms being prosecuted for trivial breaches of the CML Handbook, we do not think that the Law Society should reconsider its current policy on enforcement. It is presumably in the best interest of the profession to ensure that all solicitors adhere to the terms of the CML Handbook, to prohibit the claims from Lenders. However, we would hope that the Law Society would take a practical view on any relatively trivial breach of the CML Handbook and exercise reasonable judgement in this regard. I am sure we are all aware of certain technical breaches of the CML Handbook which may arise – not least where title deeds are delivered just prior to settlement, or loan papers, and indeed Lender’s details, are received just prior to settlement. For example, it is presumably not an uncommon situation where there have been some historic alterations undertaken at a property for which there is no Certificate of Completion available, and I am aware that different practices operation in different areas of the country. The CML Handbook will make a general reference to taking all reasonable steps to ensure that all “necessary” documentation is available, and given the current position, I would imagine that all solicitors would now be reluctant to make the judgement to whether or not, for example, documentation for a 20 year old minor alteration was “necessary”. As a result, in order to ensure that they are not at risk, a solicitor would be wise to intimate this to the Lender for their confirmation that they accept the position, but of course given the difficulty of actually making contact with anybody at certain Lenders who can make any decision, it may be unlikely that any decision would be reached in a reasonable timescale. Alternatively, the Lender may simply revert matters to the solicitor and I am sure that we have all seen the situation where the Lender has advised that they are “relying on our judgement”! I would hope that, in circumstances where some judgement has been exercised by the solicitor, and where there would be no risk of loss to the Lender, then the Law Society would not be heavy handed in such circumstances. |
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| In connection with point 6 of your E-Mail it appears that our Society, whilst promoting themselves as one of the new regulators, still believes it should be acting as Policeman and I am aware that in addition to them now making a breach of the CML Handbook a disciplinary offence that there is a process of information sharing with the Police and other authorities. One has to wonder what the Society is gaining out of such actions. I am certainly aware from speaking to other colleagues that very few, if any, would seek advice from The Law Society of Scotland given the Society’s clear statement to share information with other bodies. |
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| We agree that the LSS rules should be changed so that they should only bring disciplinary action if there is a complaint from the lender. We are acting as agents, and the rules of agency do allow for decisions to be made by the agent. |
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| I strongly agree that LSS should reconsider its policy. |
| Are there any points or suggestions you would like SLAS to raise with LSS or add to the discussion? Responses: |
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| I think it is just a sign of them tightening up in light of things coming out of the woodwork as a result of the downturn. A condition about this was introduced into the Combined Standard missives last October / November. I don't think it is the end of the world as we know it. I believe the police are investigating several brokers and solicitors firms in connection with mortgage fraud arising out of back to backs and as you know, the Law Soc have said that they will disclose the outcome of their investigations to the police if they have suspicions. It's all just a sign of the times. |
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| Thank you for the email last week and I respond as follows: 1 No 2 No 3 Perhaps that would be sensible 4 I am coming to the conclusion that we should not act for both lender and borrower 5 Perhaps not 6 Yes 7 None other than I did speak to someone at LSS who was very helpful in explaining the FSA involvement with lenders which in part is resulting in the restriction on lender panels and my answers above are in part a reaction to that first and foremost but also as now highlighted because of the CML implications. |
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| I do believe that the Society seem determined in hanging a great number of lawyers in the country out to dry to, presumably to demonstrate to the government, the CML and others of their ability to govern members of our profession. That is not what I thought The Law Society of Scotland was there to do. |
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| My firm would welcome the SLAS Council making representations to the Law Society in connection with some of the matters raised. |
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| I think that the Scottish Law Agents is the only body which truly represents the mass body of solicitors at this time and must take more action to make the LSS more accountable to us. |
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| I attach a copy of S.108 as it appears in the draft Land Registration Bill introduced in the Scottish Parliament last month, together with a copy of the Law Society submission relating thereto. This should be of concern to all solicitors as it creates a criminal offence (punishable by up to 2 years in prison) where a solicitor fraudulently or recklessly submits a deed for registration in the Land Register. The Law Society’s response includes the following: “…. the use of the term ‘recklessness’ has the effect of criminalising professional service which, although unsatisfactory, falls short of fraudulent As drafted, this would cover those solicitors who make a genuine administration error in submitting an application for registration or any other dealings with the Registers of Scotland.” The section did not form part of the Law Commission's recommendation; rather, it has been insisted upon by the Lord Advocate (and the fear is that, having been insisted upon, will prevail). (Extract from) SUBMISSION FROM THE LAW SOCIETY OF SCOTLAND The Society is fully supportive of, and committed to, all measures aimed at preventing and minimising any kind of fraudulent behaviour. In this respect the Society have often worked, and continue to work, very closely with stakeholders, including the Registers of Scotland. Section 108 The Society notes that the Land Registration (Scotland) Bill, as currently drafted, creates a new offence at Section 108: (1) A person mentioned in subsection (2) commits an offence if the person- (a) makes a materially false or misleading statement in relation to an application for registration knowing that, or being reckless as to whether, the statement is false or misleading, or (b) intentionally fails to disclose material information in relation to such an application or is reckless as to whether all material information is disclosed. The Society wish to make the following comments on the proposed Section 108 offence: The Society is of the opinion that the proposed provision is not necessary for two reasons, (1) the current criminal law, both at common law and under statute, is sufficient to prosecute the mischief complained of, and (2) the introduction of this offence is disproportionate to the level of threat presented. (1) There already exist statutory and common law criminal offences which cover the mischief complained of. The common law provides for the offence of fraud, and attempted fraud which extends to false representation by writings, words or conduct. Further offences are also provided for in the Proceeds of Crime Act 2002. Part 7 sets out a number of offences (appendix 1) which relate to money laundering. In addition, the Society is of the opinion that when a solicitor is completing and submitting registration forms they are effectively making a statutory declaration. If the solicitor provides false or misleading information in that declaration, then the making of false or misleading statements, whether intentionally or recklessly, may be pursued as contempt with the penalties that establishment of that offence carries (see Appendix 2). As well as criminal sanctions, the Society, as the regulator of the solicitors profession in Scotland, has strict rules in place to prevent and address any kind of wrongdoing by a practicing solicitor. In particular, the Law Society of Scotland Practice Rules 2011, Rule 6 provides: 6.23.1 Every independent legal professional who is regulated by the Society shall comply with the provisions of the Money Laundering Regulations. 6.23.2 A regulated person shall demonstrate to the Society on request that the information held by him or by his practice unit is sufficient to evidence compliance with the provisions of Part 7 of the Proceeds of Crime Act 2002 and Part 3 of the Terrorism Act 2000. Where a solicitor is found to be in breach of the Society’s Rules, then the Society may take disciplinary action against that individual or firm of solicitors. The Society, therefore, is of the opinion that there exits sufficient deterrent in the form of existing law and practice rules to deter the mischief complained of. (2) The Society believes that the introduction of this offence is disproportionate to the level of threat presented. The Society has not been presented with, nor is it aware of, sufficient evidence to demonstrate that the level of mischief to be apprehended is as extensive as suggested. And therefore, the Society suggests that the number of cases where current ‘difficulties’ in prosecuting the mischief under existing criminal law arise, as forwarded to support the introduction of the offence, is very small in number. The Society also believes that the very small number identified could all be prosecuted under existing criminal law. Statutory intervention to address cases which are of rarity would appear to be incongruous to the statutory process where adequate tools exist for prosecutors to pursue criminally reckless conduct by solicitors resulting in loss to a public body. The Land Registration Act 2002, which applies in England and Wales, provides for a similar offence and mirrors, to an extent, the proposed Section 108 offence. The Crown Prosecution Service has confirmed to the Society that no proceedings or prosecutions have been brought under these provisions. The Society is of the opinion that the proposed wording of Section 108 (1) is not sufficient to give solicitors or other applicants sufficient notice of the types of behaviour, action or inaction which may result in criminal penalties being levied or indeed deprivations of liberty ensuing. The Society hold this to be a fundamental requirement of the criminal law in our society. |
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| The legal profession in Scotland have, quite honestly, been hung out to dry by those who are supposed to be representing us. Clearly influenced by the fact that those on the Council of The Law Society of Scotland have their own agendas for themselves and for presumably for their own firms. I [despair] at what I see as The Law Society’s complete antipathy towards the general practitioners in the legal profession in Scotland. |
| CML Compliance and Conflict of Interest - Consolidated Responses and 3 Proposals from SLAS At the SLAS Council meeting on 27th January there was discussion on the points arising from “Consolidated Responses from LSS members to SLAS email on CML Compliance”. Whilst acknowledging the huge difficulties, caused by the recent actions of Lenders, facing solicitors acting for purchasers and lenders in residential conveyancing transactions SLAS Council was mindful that the Conflict of Interest Rule relating to Lenders/Borrowers were reviewed within the past few months by the LSS. This review followed a SLAS motion at the last AGM and the outcome of the LSS review was that there was an overwhelming majority for no change to the status quo. SLAS Council’s brief to me and Ian Ferguson is to gauge the feeling within the sector of the profession who are impacted by recent developments to assess whether that consensus has changed. The only way I could think to do this quickly and simply was to post the text of my original email of 13th January and the Consolidated Responses to our web site. Then send this email encouraging you to indicate your support for each of Proposals 1, 2 and 3 by copying the section below and replying to me by email indicating "Yes" or "No" against each of the 3 Proposals. I will then update the web site daily with number of votes for each Proposal. If the majority view is for the status quo, then that is democracy in action. Those who do not agree with the decision may decide to adjust their business plan. But no one who has been invited to contribute their view can complain that they did not have the opportunity to participate in, and influence, the outcome of the debate. As you will see from the Consolidated Responses the topics that attracted most feedback were:
The “Big Six” are set out at P.7 of the Marsh Report 2011 which states: 5.1.1 seller has not owned property for 6 months (back-to-back) For those who are concerned about losing business if the profession decides on change there was also an intriguing suggestion for a way forward, see:
How many members make up a “ground swell”? Our best estimate is about 3,000 of the 10,000 or so practicing solicitors in Scotland will be impacted by these issues either:
In the ABS referendum 4,466 solicitors voted. This was the biggest ever response from the profession on any issue. This was partly because ABS impacted on the whole membership but mainly because there was intensive lobbying by both the “For” and the “Against” camps. Applying the same sort of 40% turnout to these issues, which only impact on those members directly or indirectly involved in residential conveyancing and is unlikely to generate such intensive lobbying, we estimate that about 1,200 solicitors would vote at a general meeting of the LSS. At this early stage in the process our feeling is that 150 votes in favour of change would be a good indicator that there is sufficient appetite within the profession to merit starting to lobby the LSS for change. Expressions of Support I support Proposal 1: I support Proposal 2: I support Proposal 3: Could I also ask that you copy this email to as many colleagues as possible and encourage them to respond to me following the same method. It would be best if each member could respond rather than one partner/director responding on behalf of a firm. This will make it easier to verify each vote. Only emails from members of the LSS will be counted. As before all replies will be treated in confidence and none will be attributed unless you instruct otherwise. The “score” of For and Against each Proposal will be updated each morning until voting closes at noon on Wednesday 29th Feb. Less than 150 “For” or a larger number “Against” Proposals 1, 2 or 3 and Ian and I will report back to SLAS Council that there is not sufficient support for change and recommend no further action on that Proposal at this time. It is over to you. If you do nothing, your voice will not be heard. If you respond, your Law Society will be better informed on the strength of feeling of their members “For” or “Against” these Proposals. On behalf of SLAS - Ian and I look forward to hearing from you. Kind regards Graham Graham Gibson Tel: 01738 442299 [Ext 704] email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it |
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This section contains feedback and information on other developments that will inform the debate or impact on the options available to the profession.
SLAS are keen that as many of the profession as possible vote as this will indicate the strength of feeling for or against each Proposal. It is over to you. If you do nothing, your voice will not be heard. To vote please click on the "Vote Now!" button and let your Law Society know your thoughts. SLAS policy is to preserve the anonymity of all contributors. We will only to re-print comments where we have obtained the express consent of the contributor. We will only attribute comments where the respondent has given their express consent. Proposal 1
A number of members have mentioned that they will vote Yes but, citing past experience, do not expect the LSS to listen. As with any large members organisation individuals can struggle to get their voice heard amidst the background noise of daily business, but if enough members are singing the same song, hopefully the LSS will take notice and action. Proposal 2 For the avoidance of doubt the Amnesty from prosecution by the LSS would be sought for any breach of the CML Handbook where (a) the breach occurred before 1st Nov 2011 when the new Account Rule came into force; and (b) the solicitor was not complicit in fraud. Nothing in Proposal 2 would prevent the Lender founding on any breach of the CML Handbook. The Amnesty relates only to the prosecution by the LSS of its members where the breach was the result of the solicitor exercising his/her professional judgement in the normal course of business before the new Accounts Rule came into force on 1st Nov 2011. The “Big Six” are set out at P.7 of the Marsh Report 2011 which states: “Lenders rely particularly on these six clauses in the CML Handbook in pursuing claims for breach of contract. 5.1.1 seller has not owned property for 6 months (back-to-back) 5.8 requirement to obtain a valid first ranking security 5.9 the Purchaser is not providing the balance of the price from their own funds 6.4.4 notification of any cashback provided to the Purchaser 6.4.4 notification of any non-cash incentive 6.4.5 Solicitor not having control over the whole of the purchase price” Proposal 3 Several of the "Yes" votes for Proposal 3 were conditional on the LSS implementing the Classic Report on Title that was suggested by one of the Respondents in Q4.
The open letter of 20th Jan by Des Hudson, Chief Executive of The Law Society of E & W, gives an indication of the strength of feeling amongst our colleagues south of the border.
A useful roundup of the issues including information from John Scott of the Law Society on the process that needs to be gone through to effect a change in the any Rule. These further steps would not apply to Proposals 1 and 2 which are matters of internal LSS policy.
"But, [John Scott of LSS] warns, it isn’t just a question of taking a majority vote of the Society’s members. “The public interest has to be considered as well, and any change in practice rule has to go through the Regulatory Committee and be approved by the Lord President. There would have to be a convincing public interest case made; an argument simply that solicitors were losing out because of panel restrictions wouldn’t cut much ice, I don’t think. And we have representations from consumer organisations concerned at the possibility of increasing costs because people would be paying two sets of solicitors’ fees.”" Later in the same article John introduces what could be a powerful driver for change "Whereas consumer groups may have cost concerns in relation to a rule change, they may be more sympathetic over the obvious restriction on consumer choice if lenders make it harder for purchasers to choose their local solicitor, particularly against that background. Scott also reveals that the Society is watching an interesting development in the Eire, where consumer pressure arising from concern about lenders passing on their costs to borrowers led to legislation effectively prohibiting the practice. Lenders decided in response that they would not be represented at all, instead relying on a letter of undertaking from the purchaser’s solicitor." Interesting discussion on LinkedIn (need to have signed up to LinkedIn before this link will work) - http://www.linkedin.com
From the LSS e-Bulletin of 8th Feb
HSBC mortgage documents - Law Society Professional Practice Updates
Mortgage documentation issued by HSBC panel solicitors to purchasers' solicitors is based on English conveyancing law and practice and exposes them to considerable risk. The Society is currently in discussions with HSBC and until issues with documentation are resolved, solicitors are advised not to engage with HSBC panel firms. The Law Society of England & Wales’ web site gives a useful round up of the impact of policy decisions made by HSBC, Nationwide, Lloyds TSB and Santander. Law Society of England & Wales - Convayancing Panels page (24th Feb) Law Society E & W on HSBC revised form of Report on Title (17th Feb)
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