Legal risk outlook still a concern

October 2014

Legal risk outlook still a concern

The risk outlook issued by the Solicitors' Regulation Authority (“SRA”) identified financial instability as a continuing worry for legal practices and a recent Conveyancers’ Association Conference encouraged conveyancers in particular to recognise the huge risk to consumers of losing money and/or confidential information as a result of criminal activity. The report also highlighted the fact that many legal practices had weak prevention systems, and as a result may fail to identify rogue individuals with criminal intent. 

Bogus Legal Practices

Stealing the identities of existing firms or individuals has become increasingly common. Conveyancing transactions are often used for such tactics, and when successful, the result can have a serious impact both on the client and on the reputation of the legitimate firm, whether or not they have been found to be at fault. Although the industry cannot remove this risk entirely, prudent measures can be taken within departments and firm-wide to reduce the risk. The SRA is playing its part in encouraging firms to carry out regular internet searches of its own firm name to check for identity theft as well as ensuring that the firm's details on the Law Society's "Find a Solicitor" site are up to date. Further obvious measures include ensuring staff are alert to suspicious incidents, such as when others believe your firm is dealing with a transaction that the firm is unaware of. Often identity theft cases follow particular patterns and firms are encouraged to train staff through compulsory training sessions. The SRA has also set up a website for scam alerts which can be followed through the site or on Twitter. Any suspicious activity should be reported to the "Red Alert" hotline immediately to warn solicitors of the scam.

Transferring Purchase Money

The purpose of identify theft is ultimately for the criminal to receive funds from an unsuspecting solicitor who believes he is transferring purchase money on a conveyancing transaction to a legitimate firm acting for the seller. To counter this risk the industry has introduced measures whereby the legitimacy of the vendor conveyancer can be identified before any funds are remitted. The online system checks the track record of previous use associated with a particular bank account and will thus highlight the introduction of a new unused account before any funds are sent.

What Can Conveyancers Do To Prevent Fraud?

Most preventive measures are a matter of common sense. If, for example, the seller's solicitor doesn't have a business telephone number or insists on corresponding solely from an email address then obviously further checks should be carried out. As highlighted above, conveyancers should always check a branch office address which they are not aware of against the SRA and Council of Licensed Conveyancers' registers.

Internal staff checks are particularly important as there are unfortunately cases where fraud takes place within the firm itself. Internal fraud can have a catastrophic effect on a firm's reputation and as a result, robust checks of references, credit, and criminal records are essential. 

Since the credit crunch lenders are also exercising stricter control of third parties - brokers, valuers, and conveyancers are all carefully scrutinized. Various screening tools are used and several lenders have now built a central database for registering panel firms to ensure that only authentic firms receive instructions.

Although one can never entirely counter criminal activity there is now a robust armoury by both the SRA and the industry to protect client money and to aid conveyancers in particular avoid criminal activity. The question remains however as to what extent individual firms adopt the measures which are available within their own practices.