With the 1 July mandate fast approaching, a number of firms have come into existence offering to act as ‘Settlement Agents’ on the PEXA system for those firms/practitioners who (for whatever reason) do not wish to register. Unlike the paper system, the electronic system has very specific requirements of a Settlement Agent and, as a Subscriber on the system, the instructing practitioner must ensure that the Settlement Agent complies with the Model Participation Rules. The Settlement Agent cannot pass off its obligations to the referring practitioner under the MPR.
In consultation with the AICNSW’s professional indemnity insurers and PEXA, we have put together the following guidelines for both referring practitioners and those practitioners wishing to offer third party Settlement Agent services.
Using a third party to complete the electronic settlement of a conveyancing transaction
The next mandating date of 1 July 2019 is drawing near and it has become evident that there are some practitioners who will either not be ready for the deadline or who would prefer to engage someone else to complete the transaction on their behalf, rather than directly engage with the electronic system.
This niche in the market has been recognised by a few organisations who are offering to undertake the electronic part of a conveyancing transaction (i.e. the financial settlement including stamping and registration) on behalf of the practitioner.
However, there are specific rules that apply in the electronic settlement environment that do not apply in the paper environment.
The most significant of these are that:
Only licensed conveyancers, solicitors and Authorised Deposit Taking Institutions (ADIs) can subscribe to an ELNO (e.g. PEXA, Sympli); and
The client must directly engage and authorise the ELNO subscriber in order to comply with ARNECC’s requirements.
Outsourcing Electronic Settlements:
If you are considering appointing a third party to handle the electronic settlement of a conveyancing transaction, we suggest the following guidelines as a minimum so that you do not breach your ARNECC Participation Rules/ELNO contractual agreements or prejudice your professional indemnity insurance policy.
Ensure that the person/organisation appointed (Settlement Agent) is a current registered Subscriber and carries the appropriate insurance required by ARNECC. (Do not assume that because they are registered the insurance is automatically current or correct.) Request a Certificate of Currency as evidence.
Ensure that all relevant documents connected to the transaction are provided to the Settlement Agent along with written details (excluding the Verification of Identity and Client Authorisation*).
Request that the Settlement Agent confirms to you immediately that they have carried out their own Verification of Identity and obtained a Client Authorisation in accordance with ARNECC requirements*. This is to establish that the client is now the client of the Settlement Agent and to ensure that the Settlement Agent complies with ARNECC requirements.
Ensure that the client understands they must engage directly with the Settlement Agent to establish a relationship that is clear and separate to the relationship with you, necessitating a fresh VOI and a separate Client Authorisation.
When sending your Costs Disclosure to the client at the commencement of your file, provide a separate Costs Disclosure from the Settlement Agent covering the charges to be made by the Settlement Agent. It may be prudent to disclose that if the settlement time/date rolls over to another time/date, the Settlement Agent’s fee may increase.
The Costs Disclosure (Agreement) should also clearly show who is responsible for the various processes – ‘who does what’.
You should make it clear to the client that any mistakes arising out of the settlement are the responsibility of the Settlement Agent, not the Conveyancer, as the client has authorised the Settlement Agent independently.
Do not share your Digital Signature with anyone.
Conveyancers offering their services to complete electronic settlements for practitioners not registered with an ELNO:
Practitioners providing an agency service should follow guidelines similar to those outlined above.
Ensure that you receive written details of the transaction from the practitioner acting for the client in relation to the conveyancing transaction, including all relevant documents (e.g. Contract and Settlement Sheet).
Use your own Digital Signature – no exceptions.
Obtain a signed Client Authority from the client appointing you to act.
Carry out a Verification of Identity interview with the client as per the Registrar’s Requirements. (Remember that it is your responsibility as a Subscriber to verify every client.)*
Provide the client with your Costs Disclosure as soon as you are instructed in the matter.
Use your own business letterhead/email signature on all correspondence to the client. Do NOT use the stationery of the original practitioner. This is especially important if the original practitioner is from a law firm, as you may be held to be misrepresenting yourself as a legal practitioner in direct contravention of the Legal Profession Uniform Law. Please refer to the article ‘Regulatory issues in the performance of conveyancing services for legal practitioners’ by Peter Moran, Partner in the Insurance Division at Colin Biggers & Paisley, published in the June 2018 issue of Convey.
Check with your insurer that your professional indemnity insurance policy covers your proposed activity as a Settlement Agent. The PII policy protects a licensed conveyancer in relation to conveyancing work as provided for in the Conveyancers Licensing Act and its Regulation. A breach by you of these or any other statutory provision associated with conveyancing and transacting on the register (including but not limited to the Real Property Act, Conveyancing Act, Electronic Conveyancing National Law and their associated regulations, etc.) may render your insurance void.
*ARNECC strongly discourages the sharing of VOIs across practitioners. It is each practitioner’s obligation to ensure that their client is correctly identified. You will not be protected in the situation where you relied on another practitioner’s VOI in the case of fraud, except where the VOI provider specifically carried out the identification on your behalf as your agent. VOI should only be ‘re-used’ if the VOI was carried out by (or for) the Subscriber within the previous two years (see MPR 6.5.4).
Chris Tyler CEO