Legal regulation confuses mortgage lenders

In its highly critical response to the Ministry of Justice review of legal regulation, the Council of Mortgage Lenders (CML) said lenders were baffled by the “plethora” of regulators and lost confidence in legal professional standards during the credit crunch due to “significant solicitor fraud”.

In conveyancing, especially, it said “several competing professionals operate; solicitors, licensed conveyancers, and legal executives, all three having a separate regulator and rules by which they must adhere".

“In addition, there is a limited understanding of the role that the over-arching regulator, the Legal Services Board plays, from a client perspective”.

While the CML accepted there could not be “a single monolithic approach” to every issue, it suggested clients would rather there was a “certainty of approach” and “consistent standard across the various professionals who may all work on the same conveyancing file”.

It criticised both indemnity insurers for aggregating claims “so as to reach liability limits quickly”, and the Solicitors Regulation Authority (SRA).

“A majority of our members have expressed concerns about the compensation arrangements provided by the SRA,” it said.

“In particular, they have reported that they have been held to a far more stringent set of standards when claiming from the Solicitor’s Compensation Fund, than they would have been held to under their own regulator, and as a result, very few of the claims they have made have been successful. The discretionary nature of the Fund is well understood by lenders, as is the notion of contributory negligence, but a lack of transparency around the decisions has led to the perception that lenders are, in some cases, being unfairly viewed as contributing to losses which are sustained primarily through the legal service provider.

“Long delays in dealing with claims were also reported, although we are aware that the SRA are working to clear the backlog of claims they have with the Compensation Fund.”

An SRA spokesperson said they did not want to comment on individual responses to the MoJ's consultation.