Winning hand

25 April 2011 | By Natalie Thomas

It has long been a case of survival of the fittest in the financial services sector, with larger firms pushing out smaller more vulnerable ones. But attempts by some lenders to carry out their own natural selection process on their conveyancing panels has put them at loggerheads with the Law Society.

Last year saw the removal of thousands of conveyancers from panels in a bid to cut down on fraud. Lenders hold all the cards when it comes to who they allow onto their panels.

As part of the streamlining process many lenders opted to remove firms that had transacted just a small number of cases over the last 12 months.

A number of them, most notably Lloyds Banking Group and Santander, reportedly removed thousands of conveyancers from their panels last year, and although it never confirmed a number the former is estimated to have culled around 2,500.

The move has hit small high street solicitors the most and firms that don’t necessarily specialise in conveyancing, so do few cases.

Last month Lloyds group agreed with The Law Society of Scotland to invite many of the firms that had been removed from its conveyancing panel to reapply. The lender says its panel in Scotland will now include firms that carry out a small number of transactions.

Here in the UK the problem continues to dog the industry with conveyancers warning more culls may be on the way. Some see this as a prudent move by lenders, some of which had so many firms on their panels they were unable to carry out sufficient due diligence. But others have compared it to the likes of a supermarket giant taking out the smaller corner shops and creating a culture where only larger firms survive.

This has prompted The Law Society to start a campaign to get its members to write to their MPs to try and get lenders to reverse the decision. It says a number of banks and building societies are merging and reviewing their infrastructure and relationships.

The result of this has been the rationalisation of conveyancing panels and those most affected have been small firms and sole practices with relatively low volumes of work.

“There are serious issues for high street family-type solicitor firms that only conduct small levels of conveyancing business and could in no way be described as specialists,” says Harpal Singh, managing director of the Conveyancing Alliance.

He predicts that as lenders continue to cut their panels we could see the end of small solicitor firms offering conveyancing services.

“What is happening is akin to what we have seen in the retail sector with the large supermarkets effectively taking out corner shops,” he says.

“As a bigger share of business goes to the specialists, less will be left for the high street and it will come to a point where it becomes unsustainable for small firms to carry out conveyancing business.”

Santander has closed its conveyancing panel to new applicants as it realigns Abbey for Intermediaries’ panel with that of Alliance & Leicester, which it bought in 2008.

“Since April last year we have been reviewing our residential conveyancing panel and removed firms that have undertaken either none or few conveyancing transactions for us over the last 12 months,” a Santander spokeswoman says.

“Once the panel reopens all law firms are welcome to apply to become a member, subject to satisfying the group’s criteria, and we will continue to review the panel membership to ensure that it comprises active members.”

One way in which The Law Society is trying to set lenders’ minds at ease regarding suspected wrongdoing by conveyancing firms is by launching a Conveyancing Quality Scheme, designed to provide a recognised quality standard for residential conveyancing firms.

The Council of Mortgage Lenders has backed the scheme and is encouraging its members to use it as a pre-requirement for conveyancers that want to get on their panels.

“Lenders need to have confidence in the services on offer and a key concern remains fraud,” says a CML spokesman. “It remains to be seen whether the scheme will be successful, but we have given The Law Society our support for it to be recognised by our members as a pre-requirement for conveyancers getting on their panels.”

The CQS could be a good way for small firms to prove their credentials and stay on lenders’ panels.

“The scheme is rigorous and anyone serious about conveyancing should be applying for it,” says Bob Bhalla, managing partner at Gordons Property Lawyers.

“The cuts to panels have been driven by the economy and small conveyancers need to move with the times and ensure they provide good service to lenders.”

Bhalla sympathises with smaller firms that he says will find it harder to continue as other lenders start to cut their panels.

“Now the trend of lenders removing conveyancers from their panels has started it is set to continue, which will result in a lot of consolidation in the conveyancing market,” he adds.

“Conveyancing business would have been the bread and butter of many small solicitor firms, but if they are unable to get a place on the panels they may have to merge with other conveyancing firms.”

Lloyds group has started to carry out its own due diligence on the remaining conveyancers on its panel. It is running a pilot scheme with some members, asking them for details about professional indemnity insurers and client records. The pilot is due to end soon and it is unclear whether this will result in more conveyancers being removed.

“It’s important we take a proactive approach to managing our conveyancing panel for the benefit of us but also customers and mortgage professionals,” says a spokeswoman for Lloyds group.

She says the pilot exercise allows it to confirm and collect relevant data about firms that represent the lender and its customers so it can maintain standards.

“We’re asking firms to provide key data and some may receive a face-to-face visit,” she adds.

It is believed other lenders are looking at similar schemes.

“As the market becomes fraught with risk and fraud, any lenders worth their salt will want to ensure conveyancing fraud is something they administer themselves independently rather than leave in the hands of the potentially self-interested legal industry,” says Mark Blackwell, managing director of Xit2.

Blackwell believes that although The Law Society’s scheme is a good quality mark, banks need to set their own standards.

“The lending industry needs a benchmark but it’s down to lenders to set this,” he says. “Lenders need to bring the selection of conveyancer firms and the quality management of the conveyancing process under their direct control.”

For lenders to know who they are dealing with Blackwell says they need to have the right systems in place to cross-check cases against previous ones and carry out checks on the conveyancers.

“I think this is where the CQS may fall down,” he says. “I’m not convinced its data would be rich enough to compete with the audit and fraud tools on the market.”

The Law Society has made some headway in persuading lenders to offer an appeals process for firms that have been removed from panels. It has been in ongoing talks with the CML and major lenders over the issue of panel membership.

“As a result of those talks we have been able to agree an appeals process with some lenders for our members in England and Wales, should they be removed from panels,” says a spokeswoman for the Law Society.

Through communications with the CML and its members, the Law Society says it will be able to convey its concerns over conveyancers being removed from panels in the first instance. The society says although it acknowledges that lenders are concerned about the threat of fraud and that fewer conveyancing transactions are being carried out it still wants to see its members treated fairly.

But the power ultimately rests with lenders. If a lender believes that it has good cause to remove a conveyancing firm from its panel there is nothing legally that can be done to stop it.

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